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.

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.

		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

eTextbook and Media

Attempts: 2 of 3 used

Using multiple attempts will impact your score.

5% score reduction after attempt 2

(b2)

Correct answer iconYour answer is correct.

Prepare an incremental analysis concerning the possible discontinuance of Division II. (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 preious two amounts		enter a total dollar amount for the preious two amounts		enter a total dollar amount for the preious two amounts
Income (loss) from operations		$enter income or loss from operations amount in dollars		$enter income or loss from operations amount in dollars		$enter income or loss from operations amount in dollars

eTextbook and Media

Attempts: 2 of 3 used

Using multiple attempts will impact your score.

5% score reduction after attempt 2

(b3)

Correct answer iconYour answer is correct.

What course of action do you recommend for each division?

Division I		select a course of action EliminatedContinued
Division II		select a course of action ContinuedEliminated

eTextbook and Media

Attempts: 2 of 3 used

Using multiple attempts will impact your score.

5% score reduction after attempt 2

(c)

Prepare a columnar condensed income statement for Pharoah Company, assuming Division II is eliminated. Division IIs unavoidable fixed costs are allocated equally to the continuing divisions. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

PHAROAH COMPANY CVP Income Statement For the Quarter Ended March 31, 2022
		Divisions
		I		III		IV		Total
Sales		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
Variable costs
Cost of goods sold		enter a dollar amount		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		enter a dollar amount
Total variable costs		enter a subtotal of the previous two amounts		enter a subtotal of the previous two amounts		enter a subtotal of the previous two amounts		enter a subtotal of the previous two amounts
Contribution margin		enter a total amount for the first part		enter a total amount for the first part		enter a total amount for the first part		enter a total amount for the first part
Fixed costs
Cost of goods sold		enter a dollar amount		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		enter a dollar amount
Total fixed costs		enter a subtotal of the previous two amounts		enter a subtotal of the previous two amounts		enter a subtotal of the previous two amounts		enter a subtotal of the previous two amounts
Income (loss) from operations		$enter a net income or loss amount		$enter a net income or loss amount		$enter a net income or loss amount		$enter a net income or loss amount