Question
Panda Corporation has four operating divisions. During the first quarter of 2014, the company's divisional results shown below: Division II III Sales Cost of
Panda Corporation has four operating divisions. During the first quarter of 2014, the company's divisional results shown below: Division II III Sales Cost of goods sold $510,000 300,000 $400,000 $310,000 250,000 Selling and administrative expenses Income (loss) from operations 60,000 $150,000 80,000 270,000 75,000 IV $170,000 156,000 70,000 $ 70,000 $ (35,000) $(56,000) Analysis reveals the following percentages of variable costs in each division. II III IV Cost of goods sold 70% 80% 70% 90% Selling and administrative expenses 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). Consensus is that one or both of the divisions should be discontinued. Required: (a) Compute current net income for Panda Company. (b) Prepare income statement for Panda Corporation; assuming Division III and IV are eliminated and unavoidable fixed costs is allocated equally to the continuing divisions. (c) Should Panda Company eliminates the Division III and Division IV? Why or why not? Show calculation.
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