P21-54 Prepare incrementale nalysis concerning oli vination of divisions Brislin Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of S213,000 and the following divisional results. Sales Cost of goods sold Selling and administrative expenses Income ( 18) from operations $250,000 200,000 75,000 ($25,000) II $200,000 192,000 60,000 (S$2,000) Division III $500,000 300,000 60,000 $140,000 IV $450,000 250,000 50,000 $150,000 1 Analysis reveals the following percentages of variable costs in each division Cost of good sold 70% Selling and administrative expenses 40 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. II 90% 60 III 80% 50 IV 75% 60 (b) Instructions (a) Compute the contribution margin for Division I and II. 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 (S213,000) with the total income from operations without Division II NOTE: Enter a number in cells requesting a value: enter either a number or a formula in cells with a "?" (a) Compute the contribution margin for Division I and II. Division I Value Division II Value Sales Variable costs Cost of goods sold Selling and administrative Total variable expenses Contribution margin Value Value Value Value ? ? ? ? (b) |(1) Prepare an incremental analysis concerning the possible discontinuance of Division I Net Income Increase (Decrease) Value Continue Value Eliminate Value Division 1 Contribution margin (above) Fixed costs Cost of goods sold Selling and administrative Total fixed expenses Income (loss) from operations Value Value Value Value ? ? Value Value ? ? ? ? (b) |(2) Prepare an incremental analysis concerning the possible discontinuance of Division II. Continue Value Eliminate Value Net Income Increase (Decrease) Value Division II Contribution margin (above) Fixed costs Cost of goods sold Selling and administrative Total fixed expenses Value Value ? Value Value Value Value ? ? (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. BRISLIN COMPANY CVP Income Statement For the Quarter Ended March 31, 2017 Divisions IV Value Value Value Total Value Value ? Value Value ? ? Value Value ? ? ? Sales Variable costs Cost of goods sold Selling and administrative Total variable costs Contribution margin Fixed costs Cost of goods sold Division Fixed costs Share of Div II Fxd Cost 1/3 Selling and administrative Division Fixed costs Share of Div II Fxd Cost 1/3 Total fixed costs Income (loss) from operations Value Value Value Value Value Value Value Value ? Value Value Value Value 2 (d) Reconcile the total income from operations ($213,000) with the total income from operations without Division II Income (loss) from operations Divisions I, II, III, IV Add: Division II loss Less: Division II Fixed costs split among divisions Income (loss) from operations Divisions I, III, IV Value Value Value
