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.

2. 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?

3. 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.