Gutierrez Company has four operating divisions. During the first quarter of 2014, the company reported aggregate income from operations of $213,000 and the following divisional results.

	Division
	I	II	III	IV
Sales revenue	$250,000	$200,000	$500,000	$450,000
Cost of goods sold	200,000	192,000	300,000	250,000
Selling and administrative expenses	75,000	60,000	60,000	50,000
Income (loss) from operations	$(25,000)	$(52,000)	$140,000	$150,000

Analysis reveals the following percentages of variable costs in each division.

	I	II	III	IV
Cost of goods sold	75%	90%	80%	75%
Selling and administrative expenses	40	70	50	60

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 Gutierrez Company, 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