Concord Company has four operating divisions. During the first quarter of 2017,

Question

Concord Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $183,700 and the following divisional results.

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

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.

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).)

Division I II III IV Sales $250,000 $198,000 $499,000 $443,000 Cost of goods sold 200,000 194,000 305,000 255,000 Selling and administrative expenses 70,300 62,000 65,000 55,000 Income (loss) from operations $ (20,300) $ (58,000) $129,000 $133,000

Explanation / Answer

Solution :

As there is net financial advantage of $33,030 on discontinuance of Division II, therefore division II should be eliminated.

Incremental Analysis - Continue Division II (Alt 1) or Eliminate Division II (Alt 2) - Concord Company Particulars Continue Division II (Alt 1) Eliminate Division II (Alt 2) Net Income Increase (Decrease) - Alt 2 Amount Amount Sales $198,000.00 $0.00 -$198,000.00 Variable Cost: Variable cost of goods sold ($194,000*88%) $170,720.00 $0.00 -$170,720.00 Variable Selling and administrative Expenses ($62,000*57%) $35,340.00 $0.00 -$35,340.00 Total Variable Cost $206,060.00 $0.00 -$206,060.00 Contribution Margin -$8,060.00 $0.00 $8,060.00 Fixed Costs: Cost of goods sold ($194,000*12%) $23,280.00 $11,640.00 -$11,640.00 Selling and administrative ($62,000*43%) $26,660.00 $13,330.00 -$13,330.00 Total fixed expenses $49,940.00 $24,970.00 -$24,970.00 Income (loss) from operations -$58,000.00 -$24,970.00 $33,030.00

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.