P$20\mathrm{.}5$ Additional Question

Brislin Company has four operating divisions. During the first quarter of $2022,$ the company reported

aggregate income from operations of $$213,000$ and the following divisional results.

Division

I II III IV

Sales $ $250,000$ $ $200,000$ $ $500,000$ $ $450,000$

Cost of goods sold $200,000192,000300,000250,000$

Selling and administrative expenses $75,00060,00060,00050,000$

Income $($loss$)$ from operations $ $(25,000)$ $ $(52,000)$ $ $140,000$ $ $150,000$

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

I II III IV

Cost of good sold $70\%90\%80\%75\%$

Selling and administrative expenses $40\%60\%50\%60\%$

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.

Instructions

a$.$ Compute the contribution margin for Division I and II$.$

b$.$ Prepare an incremental analysis concerning the possible discontinuance of $(1)$ Division I and

$(2)$ Division II$.$ What course of action do you recommend for each division?

c$.$ Prepare a columnar condensed income statement for Brislin Company, assuming Division II is

eliminated. $($Use the CVP format.$)$ Division II$$s unavoidable fixed costs are allocated equally to the

continuing divisions.

d$.$ Reconcile the total income from operations $($$$213,000)$ with the total income from operations without

Division II$.$

NOTE: Enter a formula, a cell reference, or a value $($if you are unable to reference a cell$),$ into the yellow

shaded input cells.

Additional Question

Assume that Division II's cost of goods sold and selling and administrative expenses changed to

$$180,000$ and $$75,000$ respectively. How do these changes impact the decision to drop or not drop

Division II$?$

a$.$ Division I Division II

Sales

Variable costs

Cost of goods sold

Selling and administrative

Total variable expenses

Contribution margin

Net Income

b$.(1)$ Increase

Division I Continue Eliminate $($Decrease$)$

Contribution margin

Fixed costs

Cost of goods sold

Selling and administrative

Total fixed expenses

Income $($loss$)$ from operations

Net Income

$(2)$ Increase

Division II Continue Eliminate $($Decrease$)$

Contribution margin

Fixed costs

Cost of goods sold

Selling and administrative

Total fixed expenses

Income $($loss$)$ from operations

Student calculations:

c$.$ BRISLIN COMPANY

CVP Income Statement

For the Quarter Ended March $31,2022$

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

Student calculations: