Problem 12-5 Monty Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $218,700 and the following divisional results. Sales Cost of goods sold Selling and administrative expenses Income (loss) from operations $253,000 197,000 69,300 $ (13,300) Division III $195,000 $501,000 194,000 296,000 6 2,000 61,000 $ (61,000) $144,000 $447,000 250,000 48,000 $149,000 Analysis reveals the following percentages of variable costs in each division Vo 99.9% Cost of goods sold Selling and administrative expenses 40 57 79 52 76 % 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. Compute the contribution margin for Divisions I and II. (Enter negative amounts using either a negative sin preceding the number e.g. -45 or parentheses e.g. (45).) Division I Division II Contribution margin Prepare an incremental analysis concerning the possible discontinuance of Division 1 (Round answers to o 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 LINK TO TEXT Prepare an incremental analysis concerning the possible discontinuance of Division II. (Round answers to decimal places . 1525. If amount decreases net income then enter the amount using either a negative sign preceding the number .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 LINK TO TEXT What course of action do you recommend for each division? Division I Division II LINK TO TEXT Prepare a columnar condensed income statement for Monty Company, assuming Division II is eliminated. Division II's unavoidable fixed costs are allocated equally to the continuing divisions. (If amount decreases net income then enter the amount using elther a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) MONTY COMPANY CVP Income Statement Divisions Sales Variable costs Cost of goods sold Selling and administrative Total variable costs Contribution margin Fixed costs Cost of goods sold Selling and administrative Total fixed costs Income (loss) from operations LINK TO TEXT
