J.M Smucker Company operates two divisions, the Fruit Preserves Division and the Snack Foods Division. The Fruit Preserves Division manufactures and sells jelly and jams to supermarkets. The Snack Foods Division sells its products to theme parks. The company is considering disposing of the Snack Foods Division since it has been consistently unprofitable for a number of years. The income statements for the two divisions for the year ended December 31, 2015 are presented below:

Fruit Preserves Snack Foods

Division Division Total

Sales revenue $1,500,000 $500,000 $2,000,000

Cost of goods sold 900,000 350,000 1,250,000

Gross profit 600,000 150,000 750,000

Selling & admin expenses 250,000 180,000 430,000

Net income $ 350,000 $(30,000) $ 320,000

In the Snack Foods Division, 60% of the cost of goods sold are variable costs and 25% of selling and administrative expenses are variable costs. The management of the company feels it can save $60,000 of fixed cost of goods sold and $50,000 of fixed selling expenses if it discontinues operation of the Snack Foods Division.

Instructions

(a) Determine whether the company should discontinue operating the Snack Foods Division. Prepare a schedule which supports your decision.

(b) If the company had discontinued the division for 2015, determine what net income would have been.