Problem 7-5 (Part Level Submission) Sheffield Company has four operating divisio

Question

Problem 7-5 (Part Level Submission) Sheffield Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $205,000 and the following divisional results. Division IV Sales Cost of goods sold Selling and administrative expenses $247,000 $198,000 $501,000 $448,000 200,000 190,000 298,000 254,000 64,000 63,000 45,000 75,000 Income (loss) from operations (28,000) (56,000) $140,000 $149,000 Analysis reveals the following percentages of variable costs in each division. Cost of goods sold Selling and administrative 67% 88 % 81% 78 % 38 57 50 57 expenses 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 I). Consensus is that one or both of the divisions should be discontinued 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

Explanation / Answer

Contribution margin = Sales - Variable expenses

Division 1 Division 2 Cost of goods sold 134,000 (200,000*67%) 167,200 (190,000*88%) Selling and administrative expenses 28,500 (75,000*38%) 36,480 (64,000*57%) Total variable expenses 162,500 203,680

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