Survey of Accounting Packet 17 Survey of Accounting Packet 17 Semester Case - Cowboy Ice Cream, Inc. Before purchasing the new ice cream truck, Cowboy Ice Cream, Inc. (CIC) considered eliminating the Retail Division. This was mainly prompted by Frank's (W.T. fellow shareholder) concern that the income statements for the divisions for May-September 2017 (when the Retail Division is at full operation) imply that profitability could be improved if the Retail Division were eliminated. According to its original plan, CIC plans to charge its wholesale customers at $8 per unit. W.T. expects sales to reach 34,000 units at that rate. His co-shareholder, Frank, however, argues that actual results may range from 30,000 units to 40,000 units because of market uncertainty. CIC's standard variable cost for the Wholesale Division is $5.25 per unit, and its standard fixed cost is $1,100. Division Sales Cost of goods sold Variable operating expenses required to operate each division Contribution margin General fixed operating expenses (allocation of general administrative expense) Net income Required: Retail $60,000 (18,000) 131,5001 10,500 Wholesale $160,000 190,000) (15,050) 54,950 Required: Develop budgets based on the assumptions of service levels at 30,000 units, 34,000 units, and 40,000 units. (12.000) (12,000) $ (1.500) Flexible Budget 30,000 Units Flexible Budget 34,000 Units Flexible Budget 40,000 Units $ 42.950 Sales ($8/unit) a. Explain the effect on profitability if the Retail Division is eliminated. Variable costs ($5.25/unit.) Relevant Revenue and Costs for the Retail Division: Contribution margin Fixed costs Net income b. Prepare comparative income statements of the company as a whole under two alternatives: (1) the retention of the Retail Division and (2) the elimination of the Retail Division. Keep Retail Div. Eliminate Retail Div. Decision Sales Cost of goods sold Operating expenses Contribution margin General fixed operating expenses Net income Survey of Accounting Packet 17 E13-14 Buckley Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated. Segment Sales Cost of goods sold Sales commissions Contribution margin General fixed operating expenses (allocation of president's salary) Advertising expense (specific to individual divisions) Net income A $330,000 (242,000) (30,000) 58,000 192,000) B $480,000 (184,000) (44,000) 252,000 (92,000) $500,000 (190,000) (44,000) 266,000 (92,000) (6,000) (20,000) 0 $140,000) $140,000 $174,000 Required: a. Explain the effect on profitability if Segment A is eliminated. b. Prepare comparative income statement for the company as a whole under two alternatives: (1) the retention of Segment A and (2) the elimination of Segment A