Problem 12-5

Ayayai Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $207,400 and the following divisional results.

		Division
		I		II		III		IV
Sales		$249,000		$200,000		$498,000		$446,000
Cost of goods sold		205,000		192,000		305,000		248,000
Selling and administrative expenses		71,600		60,000		59,000		45,000
Income (loss) from operations		$ (27,600)		$ (52,000)		$134,000		$153,000

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

		I			II			III			IV
Cost of goods sold		68	%		88	%		81	%		74	%
Selling and administrative expenses		40			59			47			59

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.

Prepare an incremental analysis concerning the possible discontinuance of Division I. (Round answers to 0 decimal places, e.g. 1525. If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Continue		Eliminate		Net Income Increase (Decrease)
Contribution margin		$		$		$
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed expenses
Income (loss) from operations		$		$		$