Problem 16-32 (Algo) Continue or discontinue a segment? LO 2, 3 The segmented Income statement for XYZ Company for the year ended December 31, 2019, follows: Sales Variable expenses Contribution margin Fixed expenses Operating income XYZ COMPANY Segmented Income Statement For the Year Ended December 31, 2019 Total Company Product A $ 590,800 $308,888 281,000 155,00 $399,800 $153,000 285,00 165,000 $ 24,000 $(12,280) Product B $ 110, eee 54,888 $ 56,888 49,290 $ 7,000 Product C $172,000 72,00 $180,000 71,00 $ 29,888 The company is concerned about the performance of product A, and you have been asked to analyze the situation and recommend to the president whether to continue or discontinue the product. During your investigation, you discover that certain fixed expenses are traceable directly to each product line as Indicated here: Direct fixed expenses Total Company $184, eee Product A $75, eee Product B $18, eee Product C $19,000 The remaining fixed expenses are considered to be corporatewide expenses that have been allocated to each product line based on sales revenue Required: a. What will be the effect of the decision to discontinue product A on operating income? b. Assume that product A is discontinued. Prepare a segmented Income statement for the remaining products. Allocate corporatewide fixed expenses as described. c. Starting with the segmented Income statement, use the Information you discovered during your investigation to present a more appropriately designed segmented Income statement. Required A Required B Required What will be the effect of the decision to discontinue product A on operating income? Operating income will for the XYZ Company if it discontinues Product A. decrease by Required A Required B Required c Assume that product A is discontinued. Prepare a segmented income statement for the remaining products. Allocate corporatewide fixed expenses as described. (Round intermediate calculations to 2 decimal places.) XYZ COMPANY Segmented Income Statement For the Year Ended December 31, 2019 Total Company Product B Product C Sales Variable expenses Contribution margin Direct fixed expenses Common fixed expenses $ 0 $ 0 S 0 Operating income/loss $ 0 $ 0 S 0 Required A Required B Required Starting with the segmented income statement, use the information you discovered during your investigation to present a more appropriately designed segmented income statement. XYZ COMPANY Segmented Income Statement For the Year Ended December 31, 2019 Total Company Product A Product B Product C Sales Variable expenses 0 0 0 0 Contribution margin Direct fixed expenses Segment margin Common fixed expenses Operating income/loss 0 $ 0 $ 0 $ 0 $ 0
