Question 1

Ribeiro Manufacturing Company has four operating divisions. During the first quarter of 2020, the company reported aggregate income from operations of $138,300 and the following divisional results:

		Division
		I		II		III		IV
Sales		$506,400		$394,500		$307,300		$177,300
Cost of goods sold		294,400		249,400		269,200		150,600
Selling and administrative expenses		69,400		77,500		62,000		74,700
Income (loss) from operations		$142,600		$67,600		$(23,900	)	$(48,000	)

The analysis reveals the following percentages of variable costs in each division:

		I			II			III			IV
Cost of goods sold		68%			91%			75%			90%
Selling and administrative expenses		41			51			65			70

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 (III and IV). The consensus is that the company should discontinue one or both of these divisions.

Calculate the contribution margin for divisions III and IV. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Divisions III		Divisions IV
Contribution margin		$		$

Prepare an incremental analysis for the possible discontinuance of (1) division III and (2) division IV. (Round answers to 0 decimal places, e.g. 125. Enter all negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) (1) Division III

Division III:		Keep Div. III			Shut Div. III			Income Increase (Decrease)
Contribution margin		$			$			$
Fixed costs
Totals		$			$			$

(2) Division IV

Division IV:		Keep Div. IV			Shut Div. IV			Income Increase (Decrease)
Contribution margin		$			$			$
Fixed costs
Totals		$			$			$

What course of action do you recommend for each division?

Division III should be

eliminatedcontinued

.

Division IV should be

continuedeliminated

.