P7-5B Panda Corporation has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $129,000 and the divisional results shown below. Division I II III Sales $510,000 $400,000 $310,000 IV $170,000 Cost of goods sold 300,000 250,000 Selling and administrative expenses 60,000 Income (loss) from operations $150,000 80,000 $70,000 $ (35,000) 270,000 75,000 156,000 70,000 $(56,000) Analysis reveals the following percentages of variable costs in each division. Cost of goods sold Selling and administrative expenses II III IV 70% 80% 70% 90% 40 50 60 70 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 (III and IV). Con- sensus is that one or both of the divisions should be discontinued. Instructions (a) Compute the contribution margin for Divisions III and IV. (b) Prepare an incremental analysis concerning the possible discontinuance of (1) Divi- sion III and (2) Division IV. What course of action do you recommend for each division?