Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

NHL Manufacturing Company has four operating divisions. During the first quarter of 2020, the company reported total income from operations of $36,000 and the following

NHL Manufacturing Company has four operating divisions. During the first quarter of 2020, the company reported total income from operations of $36,000 and the following results for the divisions:

Division

Leafs

Jets

Habs

Oilers

Sales

$ 405,000

$730,000

$920,000

$500,000

Cost of goods sold

400,000

480,000

576,000

390,000

Selling and administrative expenses

100,000

207,000

246,000

120,000

Income (loss) from operations

$(95,000)

$ 43,000

$ 98,000

$(10,000)

An analysis reveals the following percentages of variable costs in each division.

Leafs

Jets

Habs

Oilers

Cost of goods sold

90%

80%

90%

95%

Selling and administrative expenses

60

60

70

80

Closing any division would save 70% of the fixed costs and expenses for that division.

Top management is deeply concerned about the unprofitable divisions (Leafs and Oilers). The consensus is that one or both of them should be eliminated.

Instructions

  1. Calculate the contribution margin for the two unprofitable divisions.

  1. Prepare an incremental analysis for the possible elimination of (1) the Leafs division and (2) the Oilers division. What course of action do you recommend for each division?

  1. Prepare a condensed income statement in columns using the CVP format for NHL Manufacturing Company, assuming (1) the Leafs division is eliminated, and (2) the unavoidable fixed costs and expenses of the Leafs division are allocated 30% to Jets, 50% to Habs, and 20% to Oilers.

d. Compare the total income from operations with the Leafs division ($36,000) versus total income from operations without this division.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Social Media Audit And Stats Audit And Statistics For Social Media Platforms

Authors: Virtual Desk Tools

1st Edition

B09JDX8Z9M, 979-8492994938

More Books

Students also viewed these Accounting questions

Question

What are the seven canons of the Arbitrator's Code of Ethics?

Answered: 1 week ago

Question

Describe how to train managers to coach employees. page 404

Answered: 1 week ago

Question

Discuss the steps in the development planning process. page 381

Answered: 1 week ago