Problem 7-5 (Part Level Submission) (a) (b1) (b2) (b3) (c) Note: Please show the
ID: 2512752 • Letter: P
Question
Problem 7-5 (Part Level Submission)
(a)
(b1)
(b2)
(b3)
(c)
Note: Please show the formula. Thanks!
Problem 7-5 (Part Level Submission)
Riverbed Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $191,000 and the following divisional results.Division I II III IV Sales $250,000 $198,000 $496,000 $443,000 Cost of goods sold 205,000 190,000 297,000 255,000 Selling and administrative expenses 70,000 64,000 61,000 54,000 Income (loss) from operations $ (25,000) $ (56,000) $138,000 $134,000
Analysis reveals the following percentages of variable costs in each division.
I II III IV Cost of goods sold 69 % 89 % 80 % 74 % Selling and administrative expenses 37 61 51 58
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.
Explanation / Answer
Answer a Answer c Computation of Contribution margin for Divisions I and II RIVERBED COMPANY Division I Division II CVP Income Statement Sales $250,000.00 $198,000.00 For the Month Ended March 31, 2017For the Quarter Ended March 31, 2017For the Year Ended March 31, 2017 Less : Variable Costs Divisions - Cost of goods sold $141,450.00 $169,100.00 I III IV Total - Selling and administrative expenses $25,900.00 $39,040.00 Total Variable Cost $167,350.00 $208,140.00 Sales $250,000.00 $496,000.00 $443,000.00 $1,189,000.00 Contribution Margin $82,650.00 -$10,140.00 Variable costs Answer b1 Cost of goods sold $141,450.00 $237,600.00 $188,700.00 $567,750.00 An incremental analysis concerning the possible discontinuance of Division I. Selling and administrative $25,900.00 $31,110.00 $31,320.00 $88,330.00 Continue Eliminate Net Income Increase / (Decrease) Total variable costs $167,350.00 $268,710.00 $220,020.00 $656,080.00 Contribution Margin $82,650.00 0 -$82,650.00 Contribution margin $82,650.00 $227,290.00 $222,980.00 $532,920.00 Fixed Costs Fixed costs Cost of goods sold $63,550.00 $31,775.00 $31,775.00 Cost of goods sold $67,033.33 $62,883.33 $69,783.33 $199,700.00 Selling and administrative expense $44,100.00 $22,050.00 $22,050.00 Selling and administrative $48,260.00 $34,050.00 $26,840.00 $109,150.00 Total Fixed Expenses $107,650.00 $53,825.00 $53,825.00 Total fixed costs $115,293.33 $96,933.33 $96,623.33 $308,850.00 Income (loss) from Operations -$25,000.00 -$53,825.00 -$28,825.00 Income (loss) from operations -$32,643.33 $130,356.67 $126,356.67 $224,070.00 Answer b2 An incremental analysis concerning the possible discontinuance of Division II Continue Eliminate Net Income Increase / (Decrease) Contribution Margin -$10,140.00 0 $10,140.00 Fixed Costs Cost of goods sold $20,900.00 $10,450.00 $10,450.00 Selling and administrative expense $24,960.00 $12,480.00 $12,480.00 Total Fixed Expenses $45,860.00 $22,930.00 $22,930.00 Income (loss) from Operations -$56,000.00 -$22,930.00 $33,070.00 Answer b3 Division I Continue Division II Discontinue