Patterson Corporation has four operating division. The budgeted revenues and expenses for each division for 2014 follows: sick in the results of each division) Closing down any division would result in savings of 40% of the fixed costs of that division Top management is very concermed about the unprofitable divisions (A and B) and is considering closing them for the year. % ) . Requirement 1. Calculate the increase or decrease in operating income il Patterson closes Division A. Begin by calculating Division A's contribution margin. Division A es Contribution margin Now, calculate the fixed costs that will be saved by closing Division A Division A Fixed cost of goods sold Fixed seling, gent, and adminxpenses Total found cost Data table X Division Food costs saved by shutting down division Operating income would by Patterson Division A Division A's contribution margin Requirement 2. Calculate the increase or decrease in operating income i Patterson closes Division Begin by calculating Division B's contribution margin. its avoidable fued costs Division B Sales A B D Sales $ 530,000 $ 480,000 $ 950.000 $ 700,000 $ Cost of goods sold 410,000 375,000 590.000 460,000 Seling, general, and administrative expenses 140.000 110,000 270,000 215,000 Operating incomaloss $ 20,000) (5 (5,000) $ 90,000 $ 25.000 Further analysis of costs reveals the following percentages of variable costs in each division Cost of goods sold 89% 90 % 90.9 85 % Saling, general, and administrative expenses 65% 77% 67% 54% Contribution margin Now.calculate the fixed on that will be saved by dosine Division Print Done Contribution margin Now, calculate the faced costs that will be saved by closing Division B. Data table Division B Fred cost of goods sold Fixed selling gent, and admin expenses Total fed costs Division Fixed cost saved by shutting down division its avaldable fixed costs. Operating income would by $t Patterson closes Division 1. Division B's contribution margin Requirement 3. What other factors should the top management of Patterson consider before making a decision? 5.000), 5 30.000 A B C D Sales 530,000 $ 480,000 $ 950,000 $ 700.000 Cost of goods sold 410,000 375,000 580,000 460,000 140,000 Selling, general, and administrative expenses 110.000 270.000 215.000 Operating incomaloss (20,000 $ 20.000 25.000 Further analysis of costs reveals the following percentages of variable costs in each division Cost of goods sold 89% 90 90 % 86% Selling general, and administrative expenses 65% 77% 67% 04 OA Management should consider the impact on the morale of the remaining employee if the divisions) are closed. OB. Management should consider the role that the divisions product line plays relative to other product lines. O G. Both of the above OD. Neither of the above, management should make this decision relying only on financial data Print Done MACE OPEN . 2 - 3 4 96 5 6 7 8 9 W E R T Y U 1 0 S D G . J K
