Panda Corporation has four operating divisions. During the first quarter of 2014, the company reported aggregate income from operations of $129,000 and the divisional results shown below.

Division

I

II

III

IV

Sales

$510,000

$400,000

$310,000

$170,000

Cost of goods sold

300,000

250,000

270,000

156,000

Selling and administrative expenses

60,000

80,000

75,000

70,000

Income (loss) from operations

$150,000

$70,000

($35,000)

($56,000)

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

I

II

III

IV

Cost of goods sold

70.00%

80.00%

70.00%

90.00%

Selling and administrative expenses

40.00%

50.00%

60.00%

70.00%

Discontinuance of any division would save

50.00%

of the fixed costs and expenses for that division.

Top management is deeply concerned about the unprofitable divisions (III and IV ). Consensus is that one or both of the divisions should be discontinued.

1.

III

IV

Sales

Variable expenses

Cost of goods sold

Selling and administrative expenses

Total variable expenses

Contribution margin

2.

Division III

Net Income

Continue

Eliminate

Increase (Decrease)

Contribution margin (above)

Fixed expenses

Cost of goods sold

Selling and administrative

Total fixed expenses

Income (loss) from operations

3.

Division IV

Net Income

Continue

Eliminate

Increase (Decrease)

Contribution margin (above)

Fixed expenses

Cost of goods sold

Selling and administrative

Total fixed expenses

Income (loss) from operations

4.

5.

Prepare a columnar condensed income statement for Panda Corporation, assuming Division IV is eliminated. Use the CVP format.

Division IV