Question 5 Blue Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $211,600 and the following divisional results. Division I 11 III IV Sales $245,000 $197,000 $504,000 $450,000 Cost of goods sold 200,000 191,000 301,000 249,000 Selling and administrative expenses 72,400 63,000 58,000 50,000 Income (loss) from operations $(27,400) $ (57,000) $145,000 $151,000 Analysis reveals the following percentages of variable costs in each division. III IV Cost of goods sold Selling and administrative expenses I II 73 % 91% 39 59 82% 75% 50 61 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 1 and 11. (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. (Round answers to o 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) Contributian margin $ $ Fixed costs Cost of goods sold Selling and administrative Total fixed experses Income (less) from operations $ $ Prepare an incremental analysis concerning the possible discontinuance of Division II. (Round answers to 0 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 $ 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 1 1 Division II Prepare a columnar condensed incurtie statement for Blue Company, assuming Division II is eliminated. Division II's unavoidable fixed costs are allocated equally to the continuing divisions. (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).) BLUE COMPANY CVP Income Statement Divisions 111 IV Total Sales $ Variable costs Cost of goods sald Selling and administrative Total variable costs Contribution margin Fixed costs Cost of goods sold Selling and administrative Total Fixed costs Income (loss) from operations
