Problem 7-5 (Part Level Submission)

Pina Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $212,300 and the following divisional results.

Division

I

II

III

IV

Sales

$254,000

$199,000

$501,000

$443,000

Cost of goods sold

204,000

190,000

301,000

247,000

Selling and administrative expenses

69,700

61,000

57,000

55,000

Income (loss) from operations

$ (19,700)

$ (52,000)

$143,000

$141,000

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

I

II

III

IV

Cost of goods sold

67%

90%

82%

75%

Selling and administrative expenses

39

62

50

58

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.

Your answer is partially correct. Try again. Prepare an incremental analysis concerning the possible discontinuance of Division I. (Round answers to a 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).) Net Income Continue Eliminate Increase (Decrease) Contribution margin $ 90,137 $ - $ (90,137) Fixed costs Cost of goods sold Selling and administrative Total fixed expenses Income (loss) from operations