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Patterson Corporation has four operating divisions. The budgeted revenues and expenses for each division for 2020 follows: NGAL (Click to view the results of each
Patterson Corporation has four operating divisions. The budgeted revenues and expenses for each division for 2020 follows: NGAL (Click to view the results of each division.) Closing down any division would result in savings of 70% of the fixed costs of that division. Top management is very concemed 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 if Patterson closes division A. Begin by calculating Division A's contribution margin. Division A A Sales Data table Division A B D $ Contribution margin Sales Cost of goods sold Selling, general, and administrative expenses Operating income/loss 530,000 $ 410,000 140,000 450,000 $ 930,000 $ 340,000 560,000 120,000 235,000 (10,000) $ 135,000 $ 750,000 460,000 205,000 Requirements $ (20,000) $ 85.000 Further analysis of costs reveals the following percentages of variable costs in each division: Division B C A D 1. Calculate the increase or decrease in operating income if Patterson closes division A 2. Calculate the increase or decrease in operating income if Patterson closes division B. 3. What other factors should the top management of Patterson consider before making a decision? 91% 91 % 95% 75 % Cost of goods sold Selling, general, and administrative expenses 64 % 85 % 74 % 65 %
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