Company has the following annual contribution margin income statement shown belo

Question

Company has the following annual contribution margin income statement shown  below by total company and for its two divisions:

                                                            Total                              Division A          Division B

Sales                                                    2,000,000                       1,200,000              800,000

Less Variable Expenses                      1,450,000                        _800,000            _650,000

Contribution Margin                              550,000                          400,000              150,000

Less Traceable Fixed Expenses           _350,000                       _ 250,000            _100,000

Segment Margin                                     200,000                          150,000               50,000

Less Common Fixed Expenses           _ 150,000                       _   50,000            _100,000

Net Income                                              50,000                           100,000             (50,000)

After reviewing the division numbers, Company is considering closing Division B.  If Division B is closed, 50% of Division B

Explanation / Answer

THUS, WE CAN SEE THAT IF DIVISION B IS CLOSED, LOSSES WILL BE 150000.
HENCE, ITS BETTER TO KEEP DIVISION B OPEN

DIVISION A DIVISION B TOTAL SALES 1200000 800000 2000000 VARIABLE COST -800000 -650000 -1450000 CONTRIBUTION 400000 150000 550000 FIXED EXPENSE -250000 -100000 -350000 PROFIT 150000 50000 200000 COMMON FIXED EXPENSE -150000 NET INCOME 50000 IF DIVISION B IS CLOSED DIVISION A DIVISION B TOTAL SALES 900000 900000 VARIABLE COST -600000 -600000 CONTRIBUTION 300000 0 300000 FIXED EXPENSE -250000 -50000 -300000 PROFIT 50000 -50000 0 COMMON FIXED EXPENSE -150000 NET INCOME -150000

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