Cullumber, 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 Gary, that his division earned money for the company. Following is the most recent financial analysis for each division:

		Weak			Average		Strong
Sales revenue		$125,700			$457,000		$549,600
Variable expenses		59,000			247,400		304,800
Contribution margin		66,700			209,600		244,800
Direct expenses		30,500			73,500		117,200
Allocated expenses		71,800			71,800		71,800
Operating income		$(35,600)			$64,300		$55,800

(a)

Prepare a revised income statement showing the segment margin for each division.

		Weak		Average		Strong		Total
select an income statement item Contribution marginOperating incomeSegment marginAllocated expenseDirect costsVariable expenseSales		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
select an income statement item Variable expenseSegment marginOperating incomeContribution marginSalesAllocated expenseDirect expense		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
select a summarizing line for the first part Variable expenseSegment marginContribution marginAllocated expenseSalesOperating incomeDirect 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 Operating incomeAllocated expenseSegment marginDirect expenseContribution marginVariable expenseSales		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
select a summarizing line for the second part Allocated expenseSegment marginVariable expenseDirect expenseSalesContribution marginOperating income		$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 Operating incomeVariable expenseAllocated expenseContribution marginSalesSegment marginDirect expense								enter a dollar amount
select a closing name for this statement Segment marginContribution marginVariable expenseOperating incomeSalesAllocated 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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