Khiw NV has four operating divisions. During the first quarter of 2020, the company reported aggregate income from operations of €213,000 and the following divisional results.

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.

Instructions

a. Compute the contribution margin for Divisions I and II.

b. Prepare an incremental analysis concerning the possible discontinuance of  (1) Division I and (2) Division II. What course of action do you recommend for each division?

c. Prepare a columnar condensed income statement for Khiw, assuming Division II is eliminated. (Use the CVP format.) Division II’s unavoidable fixed costs are allocated equally to the continuing divisions.

d. Reconcile the total income from operations (€213,000) with the total income from operations without Division II.

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Division Ш п IV Sales Cost of goods sold €500,000 €200,000 192,000 €450,000 250,000 50,000 €250,000 200,000 300,000 75,000 60,000 Selling and administrative expenses Income (loss) from operations 60,000 €(52,000) € (25,000) €150,000 €140,000 Analysis reveals the following percentages of variable costs in each division. п П IV Cost of goods sold Selling and administrative expenses 80% 75% 70% 90% 40 60 50 60