Question
Blossom, Inc. operates three divisions, Weak, Average, and Strong. As it turns out, the Weak division has the lowest operating income, and the president wants
Blossom, Inc. operates three divisions, Weak, Average, and Strong. As it turns out, the Weak division has the lowest operating income, and the president wants to close it. Survival of the fittest, I say! was his response when the Weak divisions manager, insisted James, that his division earned money for the company. Following is the most recent financial analysis for each division:
Weak | Average | Strong | ||||||
---|---|---|---|---|---|---|---|---|
Sales revenue | $125,000 | $445,000 | $500,000 | |||||
Variable expenses | 50,000 | 245,000 | 300,000 | |||||
Contribution margin | 75,000 | 200,000 | 200,000 | |||||
Direct expenses | 30,000 | 75,000 | 110,000 | |||||
Allocated expenses | 67,000 |
| 67,000 | 67,000 | ||||
Operating income | $(22,000) | $58,000 | $23,000 |
(a)
Prepare a revised income statement showing the segment margin for each division.
Weak | Average | Strong | Total | |||||
---|---|---|---|---|---|---|---|---|
select an income statement item Direct costsVariable expenseSegment marginSalesOperating incomeAllocated expenseContribution margin | $enter a dollar amount | $enter a dollar amount | $enter a dollar amount | $enter a dollar amount | ||||
select an income statement item Segment marginVariable expenseOperating incomeDirect expenseAllocated expenseSalesContribution margin | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
select a summarizing line for the first part Direct expenseOperating incomeVariable expenseContribution marginSalesSegment marginAllocated expense | enter a total amount for the first part | enter a total amount for the first part | enter a total amount for the first part | enter a total amount for the first part | ||||
select an income statement item Allocated expenseSalesOperating incomeSegment marginVariable expenseDirect expenseContribution margin | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
select a summarizing line for the second part Variable expenseAllocated expenseDirect expenseSalesSegment marginOperating incomeContribution margin | $enter a total amount for the second part | $enter a total amount for the second part | $enter a total amount for the second part | enter a total amount for the second part | ||||
select an income statement item Variable expenseAllocated expenseSalesContribution marginOperating incomeSegment marginDirect expense | enter a dollar amount | |||||||
select a closing name for this statement SalesContribution marginOperating incomeSegment marginVariable expenseAllocated expenseDirect expense | $enter a total amount for this statement |
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(b)
By how much would total income change if the Weak division were dropped?
Total income will select an option increasedecrease by $enter a dollar amount . |
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(c)
Based on the way allocated expenses are divided among the divisions, what do you think will happen to the Average division if the company continues to prepare financial statements in this way, assuming Weak was dropped?
If Weak is dropped, then Average will report allocated expenses of $enter a dollar amount , resulting in an select an option operating incomeoperating loss of $enter a dollar amount for the division. |
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