Problem 20-05A a, b1-b3, c (Video)

Ivanhoe Company has four operating divisions. During the first quarter of 2020, the company reported aggregate income from operations of $226,400 and the following divisional results.

		Division
		I		II		III		IV
Sales		$248,000		$198,000		$505,000		$450,000
Cost of goods sold		197,000		192,000		301,000		249,000
Selling and administrative expenses		72,600		57,000		59,000		47,000
Income (loss) from operations		$ (21,600)		$ (51,000)		$145,000		$154,000

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

		I			II			III			IV
Cost of goods sold		71	%		87	%		81	%		77	%
Selling and administrative expenses		41			62			52			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 sign 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 I. (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 S $ s Fixed costs Cost of goods sold Selling and administrative Total fixed expenses Income (loss) from operations S 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 S Fixed costs Cost of goods sold Selling and administrative Total fixed expenses Income (loss) from operations What course of action do you recommend for each division? Division I Division II Prepare a columnar condensed income statement for Ivanhoe Company, assuming Division II is eliminated. Division II's 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).) IVANHOE COMPANY CVP Income Statement For the Quarter Ended March 31, 2020 Divisions I III IV Total 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 $