Problem 7-5A (Part Level Submission) (a) LINK TO TEXT (b1) Problem 7-5A (Part Le
ID: 2463254 • Letter: P
Question
Problem 7-5A (Part Level Submission)
(a)
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(b1)
Problem 7-5A (Part Level Submission)
Brislin Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $218,700 and the following divisional results.Division I II III IV Sales $253,000 $195,000 $501,000 $447,000 Cost of goods sold 197,000 194,000 296,000 250,000 Selling and administrative expenses 69,300 62,000 61,000 48,000 Income (loss) from operations $ (13,300) $ (61,000) $144,000 $149,000
Analysis reveals the following percentages of variable costs in each division.
I II III IV Cost of goods sold 72 % 89 % 79 % 76 % Selling and administrative expenses 40 57 52 59
Discontinuance of any division would save 50% of the fixed costs and expenses for that division.
Top management is very concerned about the unprofitable divisions (I and II). Consensus is that one or both of the divisions should be discontinued.
(a)
Your answer is correct. Compute the contribution margin for Divisions I and II. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)Division I Division II Contribution margin $ $
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Attempts: 4 of 5 used(b1)
Your answer is partially correct. Try again. Prepare an incremental analysis concerning the possible discontinuance of Division I. (Round answers to 0 decimal places, e.g. 1525. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)Continue Eliminate Net Income
Increase (Decrease) Contribution margin $ $ $ Fixed costs Cost of goods sold Selling and administrative Total fixed expenses Income (loss) from operations $ $ $
Explanation / Answer
Solution:
(a)
Calculation of Contribution margin for Division I and Division II
Particulars
Division
I
II
Sales
$253,000
$195,000
Less: Variable Cost (refer note 1)
($169,560)
($164,480)
Contribution Margin
$83,440
$30,520
(b1) Statement of Incremental Analysis concerning the possible discontinuance of Division I
Particulars
Continue
Eliminate
Net Income Increase (Decrease)
Contribution Margin
$83,440
$83,440
$0
Fixed costs
Cost of goods sold
$55,160
$27,580
$27,580
Selling and administrative
$41,580
$20,790
$20,790
Total fixed expenses
$96,740
$48,370
$48,370
Income (loss) from operations
($13,300)
$35,070
$48,370
In the Division I is discontinued, the net income of Division I will be increased by $48,370
Note 1: Calculation of Total Variable Cost and Fixed Cost of Division I and Division II
Particulars
Division
I
II
Total Cost of Goods Sold
$197,000
$194,000
Variable Cost of Goods Sold (72% of Total Cost of Goods Sold) (A)
$141,840
$139,680
Fixed Cost of Goods Sold ( C)
$55,160
$54,320
Total Selling and Administrative Expenses
$69,300
$62,000
Variable Selling and Administrative Expenses (40%) (B)
$27,720
$24,800
Fixed Selling and Administrative Expenses (D)
$41,580
$37,200
Total Variable Cost (A+B)
$169,560
$164,480
Total Fixed Cost (C + D)
$96,740
$91,520
Thank you and happy to help you dear..
Particulars
Division
I
II
Sales
$253,000
$195,000
Less: Variable Cost (refer note 1)
($169,560)
($164,480)
Contribution Margin
$83,440
$30,520