Question 2

Ribeiro Manufacturing Company has four operating divisions. During the first quarter of 2020, the company reported aggregate income from operations of $194,200 and the following divisional results:

Division

IIIIIIIVSales

$507,900$416,900$315,000$179,400Cost of goods sold

281,100

241,000272,400151,200Selling and administrative expenses

65,20073,10068,20072,800Income (loss) from operations

$161,600$102,800$(25,600)$(44,600)

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

IIIIIIIVCost of goods sold

68%92%74%92%Selling and administrative expenses

38486570

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 IVContribution margin

$

$

elaborate 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:KeepDiv. IIIShutDiv. IIIIncome

Increase

(Decrease)Contribution margin$

$

$

Fixed costs

Totals$

$

$

(2)Division IV

Division IV:KeepDiv. IVShutDiv. IVIncome

Increase

(Decrease)Contribution margin$

$

$

Fixed costs

Totals$

$

$

What course of action do you recommend for each division?

Division III should be

eliminated

continued

.

Division IV should be

eliminated

continued

.

elaborate a condensed income statement in columns for Ribeiro Manufacturing, assuming division IV is eliminated. Use the CVP format. Division IV's unavoidable fixed costs are allocated equally to the continuing divisions.(Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

RIBEIRO MANUFACTURING COMPANY

CVP Income Statement

March 31, 2020

For the Quarter Ended March 31, 2020

For the Year Ended March 31, 2020

Div IDiv IIDiv IIITotal

Net income / (loss)

Fixed costs

Contribution margin

Variable costs

Sales

$

$

$

$

Sales

Contribution margin

Variable costs

Fixed costs

Net income / (loss)

Fixed costs

Variable costs

Sales

Contribution margin

Net income / (loss)

Sales

Contribution margin

Fixed costs

Net income / (loss)

Variable costs

Net income / (loss)

Variable costs

Sales

Fixed costs

Contribution margin

$

$

$

$

Reconcile the total income from operations of $194,200 with the total income from operations without division IV.

Income from operations with Division IV$

Incremental income from eliminating Division IV$

Income from operations without Division IV$