Question
Munoz Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated. MUNOZ COMPANY Income Statements
Munoz Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated.
| MUNOZ COMPANY | |||||||||||
| Income Statements for Year 2 | |||||||||||
| Segment | A | B | C | ||||||||
| Sales | $ | 167,000 | $ | 249,000 | $ | 247,000 | |||||
| Cost of goods sold | (126,000 | ) | (86,000 | ) | (93,000 | ) | |||||
| Sales commissions | (23,000 | ) | (29,000 | ) | (24,000 | ) | |||||
| Contribution margin | 18,000 | 134,000 | 130,000 | ||||||||
| General fixed operating expenses (allocation of presidents salary) | (36,000 | ) | (47,000 | ) | (28,000 | ) | |||||
| Advertising expense (specific to individual divisions) | (3,000 | ) | (17,000 | ) | 0 | ||||||
| Net income (loss) | $ | (21,000 | ) | $ | 70,000 | $ | 102,000 | ||||
Required
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Prepare a schedule of relevant sales and costs for Segment A.
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Prepare comparative income statements for the company as a whole under two alternatives: (1) the retention of Segment A and (2) the elimination of Segment A.
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Microeconomics An Intuitive Approach with Calculus
Authors: Thomas Nechyba
1st edition
978-0538453257
