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Problem 7-5 (Part Level Submission) Blue Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $194,100 and the following divisional results. Sales Cost of goods sold Selling and administrative expenses Income (loss) from operations I $251,000 205,000 75,900 $ (29,900) Division II III $195,000 $502,000 190,000 302,000 62,000 60,000 $ (57,000) $140,000 IV $446,000 251,000 54,000 $141,000 Analysis reveals the following percentages of variable costs in each division. Cost of goods sold Selling and administrative expenses I 68 % 39 II 90 % 57 III 79 % 49 IV 73 % 6 2 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. PUR lie Quarter Elueu Martti 31, 2017 Divisions 1 III IV Total > Sales 251000 446,000 1199000 Variable costs Cost of goods sold 139400 238580 183230 561210 Selling and administrative 29601 29400 33480 92481 v Total variable costs 169001 267980 216710 653691 Contribution margin 81999 23402 229290 545309 Fixed costs Cost of goods sold 68767 Selling and administrative Total fixed costs Income (loss) from operations $