Novak Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $200,300 and the following divisional results.

		Division
		I		II		III		IV
Sales		$253,000		$198,000		$495,000		$447,000
Cost of goods sold		198,000		190,000		303,000		254,000
Selling and administrative expenses		74,700		65,000		56,000		52,000
Income (loss) from operations		$ (19,700)		$ (57,000)		$136,000		$141,000

Analysis reveals the following percentages of variable costs in each division.

		I			II			III			IV
Cost of goods sold		68	%		90	%		79	%		75	%
Selling and administrative expenses		37			60			49			61

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.

Compute the contribution margin for Divisions I and II. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Division I		Division II
Contribution margin		$		$

eTextbook and Media

Prepare an incremental analysis concerning the possible discontinuance of Division I. (Round answers to 0 decimal places, e.g. 1525. If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Continue		Eliminate		Net Income Increase (Decrease)
Contribution margin		$		$		$
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed expenses
Income (loss) from operations		$		$		$

eTextbook and Media

Prepare an incremental analysis concerning the possible discontinuance of Division II. (Round answers to 0 decimal places, e.g. 1525. If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Continue		Eliminate		Net Income Increase (Decrease)
Contribution margin		$		$		$
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed expenses
Income (loss) from operations		$		$		$

eTextbook and Media

What course of action do you recommend for each division?

Division I		ContinuedEliminated
Division II		ContinuedEliminated

eTextbook and Media

Prepare a columnar condensed income statement for Novak Company, assuming Division II is eliminated. Division IIs unavoidable fixed costs are allocated equally to the continuing divisions. (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

NOVAK COMPANY
CVP Income Statement
For the Month Ended March 31, 2017For the Quarter Ended March 31, 2017For the Year Ended March 31, 2017
		Divisions
		I		III		IV		Total
Sales		$		$		$		$
Variable costs
Cost of goods sold
Selling and administrative
Total variable costs
Contribution margin
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed costs
Income (loss) from operations		$		$		$		$