Question
Ribeiro Manufacturing Company has four operating divisions. During the first quarter of 2020, the company reported aggregate income from operations of $195,900 and the following
Ribeiro Manufacturing Company has four operating divisions. During the first quarter of 2020, the company reported aggregate income from operations of $195,900 and the following divisional results:
Division | |||||||||
I | II | III | IV | ||||||
Sales | $519,600 | $418,100 | $311,300 | $176,300 | |||||
Cost of goods sold | 293,500 | 247,500 | 265,600 | 150,000 | |||||
Selling and administrative expenses | 56,000 | 79,100 | 63,000 | 74,700 | |||||
Income (loss) from operations | $170,100 | $91,500 | $(17,300 | ) | $(48,400 | ) |
The analysis reveals the following percentages of variable costs in each division:
I | II | III | IV | |||||||||
Cost of goods sold | 70% | 90% | 75% | 92% | ||||||||
Selling and administrative expenses | 39 | 52 | 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.
1) 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).)
2)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).) (A) Division III
(B) Division IV
(C) What course of action do you recommend for each division?
Division III should be eliminated or continued?
Division IV should be eliminated or continued?
(3)
Prepare a condensed income statement in columns for Ribeiro Manufacturing, assuming division IV is eliminated. Use the CVP format. Division IVs 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).)
(4)
Reconcile the total income from operations of $195,900 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 | $ |
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