Lewis Manufacturing Company has four operating divisions. During the first quarter of 2008, the company reported aggregate income from operations of $176,000 and the following divisional results. Division I II III IV Sales $250,000 $200,000 $500,000 $400,000 Cost of goods sold 200,000 189,000 300,000 250,000 Selling and administrative expenses 65,000 60,000 60,000 50,000 Income (loss) from operations - $15,000 - $49,000 $140,000 $100,000 Analysis reveals the following percentages of variable costs in each division. I II III IV Cost of goods sold 70 % 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. Correct. Compute the contribution margin for Divisions I and II. (For negative numbers use either a negative sign preceding the number eg -45 or parentheses eg (45).) Division I II Sales $ 250000 $ 200000 Variable costs Cost of goods sold 140000 170100 Selling and administrative 26000 42000 Total variable expenses 166000 212100 Contribution margin $ 84000 $ -12100 Show Answer Incorrect. Prepare an incremental analysis concerning the possible discontinuance of: (For negative numbers use either a negative sign preceding the number eg -45 or parentheses eg (45). Enter cost amounts in the columns "Continue" and "Eliminate" as positive amounts and subtract where necessary.) (1) Division I Continue Eliminate Net Income Increase (Decrease) Contribution margin $ $ $ Fixed expenses Cost of goods sold Selling and administrative Total fixed expenses Income (loss) from operations $ $ $ (2) Division II Continue Eliminate Net Income Increase (Decrease) Contribution margin $ $ $ Fixed expenses Cost of goods sold Selling and administrative Total fixed expenses Income (loss) from operations $ $ $ Incorrect. What course of action do you recommend for each division? Division I Division II Incorrect. Prepare a columnar condensed income statement for Lewis Manufacturing, assuming Division II is eliminated. Use the CVP format. Division II's unavoidable fixed costs are allocated equally to the continuing divisions. (For negative numbers use either a negative sign preceding the number eg -45 or parentheses eg (45). Enter all expense amounts as positive amounts and subtract where necessary.) LEWIS MANUFACTURING COMPANY CVP Income Statement For the Quarter Ended March 31, 2008 Division I III IV Total Sales $ $ $ $ Variable cost Cost of goods sold Selling and administrative Total variable costs Contribution margin Fixed costs Cost of goods sold Selling and administrative Total fixed expenses Income (loss) from operations $ $ $ $