Pharoah Company has four operating divisions. During the first quarter of 2022, the company reported aggregate income from operations of $207,000 and the following divisional results.

		Division
		I		II		III		IV
Sales		$247,000		$198,000		$501,000		$448,000
Cost of goods sold		200,000		189,000		298,000		254,000
Selling and administrative expenses		75,000		63,000		63,000		45,000
Income (loss) from operations		$ (28,000)		$ (54,000)		$140,000		$149,000

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

		I			II			III			IV
Cost of goods sold		67	%		88	%		81	%		78	%
Selling and administrative expenses		38			57			50			57

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 (I and II). Consensus is that one or both of the divisions should be discontinued.

(a)

• Your Answer
• Correct Answer

Correct answer iconYour answer is correct.

Compute the contribution margin for Divisions I and II. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Division I		Division II
Contribution margin		$enter contribution margin in dollars		$enter contribution margin in dollars

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5% score reduction after attempt 2

(b1)

Prepare an incremental analysis concerning the possible discontinuance of Division I. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Continue		Eliminate		Net Income Increase (Decrease)
Contribution margin		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
Fixed costs
Cost of goods sold		enter a dollar amount		enter a dollar amount		enter a dollar amount
Selling and administrative		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total fixed expenses		enter a total dollar amount for the previous two amounts		enter a total dollar amount for the previous two amounts		enter a total dollar amount for the previous two amounts
Income (loss) from operations		$enter income or loss from operations amouont in dollar		$enter income or loss from operations amouont in dollar		$enter income or loss from operations amouont in dollar

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