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.

(a)

Compute the contribution margin for Divisions I and II.