Gutierrez Company has four operating divisions. During the first quarter of 2014

Question

Gutierrez Company has four operating divisions. During the first quarter of 2014, the company reported aggregate income from operations of $199,700 and the following divisional results.



Division


I
II
III
IV
Sales
$248,400
$196,300
$499,900
$446,900
Cost of goods sold
202,500
190,300
302,200
246,900
Selling and administrative expenses
74,300
64,900
60,000
50,700
Income (loss) from operations
$ (28,400)
$ (58,900)
$137,700
$149,300

Analysis reveals the following percentages of variable costs in each division.



I
II
III
IV
Cost of goods sold
77%
90%
78%
77%
Selling and administrative expenses
38%
70%
49%
59%

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 I and II:

Please explain how you got it thanks.
Gutierrez Company has four operating divisions. During the first quarter of 2014, the company reported aggregate income from operations of $199,700 and the following divisional results.



Division


I
II
III
IV
Sales
$248,400
$196,300
$499,900
$446,900
Cost of goods sold
202,500
190,300
302,200
246,900
Selling and administrative expenses
74,300
64,900
60,000
50,700
Income (loss) from operations
$ (28,400)
$ (58,900)
$137,700
$149,300

Analysis reveals the following percentages of variable costs in each division.



I
II
III
IV
Cost of goods sold
77%
90%
78%
77%
Selling and administrative expenses
38%
70%
49%
59%

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.

Division


I
II
III
IV
Sales
$248,400
$196,300
$499,900
$446,900
Cost of goods sold
202,500
190,300
302,200
246,900
Selling and administrative expenses
74,300
64,900
60,000
50,700
Income (loss) from operations
$ (28,400)
$ (58,900)
$137,700
$149,300

Explanation / Answer

Since there is negative contribution margin for division II ,hence this division should be discontinued .

Divsions I II A Sales $248,400 $196,300 Less: variable cost B Cost of goods sold $     155,925.00 $190,300.00 (202500*77%) (190300*90% C Selling and administrative expenses $      28,234.00 $ 45,430.00 (74300*38%) (64900*70%) D Contribution (A-B-C) $64,241 ($39,430) Contribution margin (D/A) 0.258619163 -0.20086602

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