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Anderson Publishing has two divisions: Book Publishing and Magazine Publishing. The Magazine division has been losing money for the last five years and Anderson is
Anderson Publishing has two divisions: Book Publishing and Magazine Publishing. The Magazine division has been losing money for the last five years and Anderson is considering eliminating that division. Andersons information about the two divisions is as follows:
Book Division | Magazine Division | Total | |
---|---|---|---|
Sales Revenue | $ 8,060,000 | $ 3,410,000 | $ 11,470,000 |
Cost of Goods sold | |||
Variable manufacturing costs | 2,260,000 | 1,126,600 | 3,386,600 |
Fixed manufacturing costs | 1,103,500 | 1,267,000 | 2,370,500 |
Gross Profit | $ 4,696,500 | $ 1,016,400 | $ 5,712,900 |
Operating Expenses | |||
Variable operating expenses | 161,000 | 236,100 | 397,100 |
Fixed operating expenses | 2,942,000 | 1,203,500 | 4,145,500 |
Net income | $ 1,593,500 | $ (423,200) | $ 1,170,300 |
Only 20 percent of the fixed manufacturing costs and 60 percent of the fixed operating expenses are directly attributable to each division. The remaining are common or shared between the two divisions.
Required:
- Compute the contribution margin and the segment margin of each division and the company as a whole.
- What will be the impact on net income if the Magazine Division is eliminated?
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