P20-5A Prepare incremental analysis concerming.elimination of divisions Brislin Company has four operating divisions. During the first quarter of 2020, the company reported aggregate income from operations of $213,000 and the following divisional results. Division II $500,000 300,000 60,000 IV $200,000 Sales $250,000 200,000 75,000 $450,000 250,000 Cost of goods sold Selling and administrative expenses Income (loss) from operations 192,000 60,000 50,000 ($25,000) ($52,000) $140,000 $150,000 Analysis reveals the following percentages of variable costs in each division. II III IV Cost of good sold Selling and administrative expenses 75% 70% 40 90% 60 80% 50 60 Discontinuance of any division would save 50 % of the foxed costs and expenses for that division. Top management is very concerned about the unprofitable divisions (I and I). Consensus is that one or both of the divisions should be discontinued. Instructions Compute the contribution margin for Division I and I. 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? Prepare a columnar condensed income statement for Brislin Company, assuming Division I is eliminated. (Use the CVP format.) Division Il's unavoidable fixed costs are allocated equally (a) (b) (c) to the continuing divisions. Reconcile the total income from operations ($213,000) with the total income from operations (d) without Division II. NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" Compute the contribution margin for Division I and I. (a) Division II Division Value Value Sales Variable costs Value Value Value Cost of goods sold Selling and administrative Total variable expenses Contribution margin Value b) (1) Prepare an incremental analysis concerning the possible discontinuance of Division I Net Income Increase (Decrease) Continue Eliminate Division Value Value Value Contribution margin (Part a) Fixed costs Value Value Value Value Value Value Cost of goods sold Selling and administrative Total fixed expenses Income (loss) from operations (b) (2) Prepare an incremental analysis concerning the possible discontinuance of Division II. Net Income Increase Division II Continue Eliminate (Decrease) Contribution margin (Part a) Fixed costs Cost of goods sold Selling and administrative Total fixed expenses Income (loss) from operations Value Value Value Value Value Value Value Value Value ? What course of action do you recommend for each division? Response: (c) Prepare a columnar condensed income statement for Brislin Company, assuming Division II is eliminated. (Use the CVP format.) Division ll's unavoidable fixed costs are allocated equally to the continuing divisions. BRISLIN COMPANY CVP Income Statement For the Quarter Ended March 31, 2020 Divisions II IV Value Total Sales Variable costs Value Value 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 Value Value Value Value Value Value ? Value Value Value Value Value Value ? ? d) Reconcile the total income from operations ($213,000) with the total income from operations without Division II. Response: After you have completed P20-5A, consider the following 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 I1? 1
