Pharoah, Inc. operates three divisions, Weak, Average, and Strong. As it turns out, the Weak division has the lowest operating income, and the president wants to close it. Survival of the fittest, I say! was his response when the Weak divisions manager, insisted Kenneth, that his division earned money for the company. Following is the most recent financial analysis for each division:

		Weak			Average		Strong
Sales revenue		$125,900			$453,000		$548,100
Variable expenses		57,300			246,600		302,900
Contribution margin		68,600			206,400		245,200
Direct expenses		36,700			78,800		112,400
Allocated expenses		70,200			70,200		70,200
Operating income		$(38,300)			$57,400		$62,600

(a)

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Prepare a revised income statement showing the segment margin for each division.

		Weak		Average		Strong		Total
select an income statement item Variable expenseSalesContribution marginOperating incomeSegment marginAllocated expenseDirect costs		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
select an income statement item Allocated expenseContribution marginSalesVariable expenseOperating incomeSegment marginDirect expense		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
select a summarizing line for the first part SalesAllocated expenseVariable expenseSegment marginContribution marginDirect expenseOperating income		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
select an income statement item Contribution marginOperating incomeAllocated expenseDirect expenseVariable expenseSegment marginSales		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
select a summarizing line for the second part Operating incomeContribution marginAllocated expenseSalesDirect expenseVariable expenseSegment margin		$enter a total amount for the second part		$enter a total amount for the second part		$enter a total amount for the second part		enter a total amount for the second part
select an income statement item Segment marginOperating incomeDirect expenseSalesAllocated expenseContribution marginVariable expense								enter a dollar amount
select a closing name for this statement Allocated expenseDirect expenseContribution marginSegment marginOperating incomeSalesVariable expense								$enter a total amount for this statement

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(b)

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By how much would total income change if the Weak division were dropped?

Total income will select an option increasedecrease by $enter a dollar amount .

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(c)

Based on the way allocated expenses are divided among the divisions, what do you think will happen to the Average division if the company continues to prepare financial statements in this way, assuming Weak was dropped?

If Weak is dropped, then Average will report allocated expenses of $enter a dollar amount , resulting in an select an option operating incomeoperating loss of