Problem 20-5A (Part Level Submission) Brislin Company has four operating divisio

Question

Problem 20-5A (Part Level Submission)

Brislin Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $211,100 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

Prepare an incremental analysis concerning the possible discontinuance of Division II. (Round answers to 0 decimal places, e.g. 1525. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Division I II III IV Sales $246,000 $195,000 $498,000 $452,000 Cost of goods sold 198,000 192,000 304,000 247,000 Selling and administrative expenses 76,900 55,000 56,000 51,000 Income (loss) from operations $ (28,900) $ (52,000) $138,000 $154,000

Explanation / Answer

Solution

Incremental analysis concerning the possible discontinuance of Division II

Continue

Eliminate

Net Income
Increase (Decrease)

Contribution margin

($ 14,640)*

$ 0

14,640

Fixed costs

Cost of goods sold

$ 15,360

( 100%-92%= 8% of ($ 192,000)

$ 7,680**

$ 7,680

Selling and administrative

$ 22,000

( 100%-60%= 40% of $ 55,000)

$ 11,000***

$ 11,000

Total fixed expenses

37,360

$18,680

18,680

Income (loss) from operations

(Contribution margin – Total fixed expenses)

($ 52,000)

($ 18,680)

33,320

*Calculation of contribution margin for Division II

Particulars

Amount ($)

Sales

$195,000

Variable cost

    *Cost of goods sold ($ 192,000 X 92 %)

$176,640

    Selling and administrative expenses ($ 55,000 X 60%)

$ 33,000

Total Variable expenses

$209,640

Contribution margin (Sales –Total Variable cost)

($ 14,640)

Note: As per given information percentages are calculated on cost of goods sold and selling and administrative expenses.

**Eliminate cost of goods sold 50% of $15,360 = $ 7,680

As it is given that discontinuance of any division would save 50% of the fixed costs and expenses for that division.

***Eliminate Selling and administrative 50% of $22,000 = $ 11,000

As it is given that discontinuance of any division would save 50% of the fixed costs and expenses for that division.

Continue

Eliminate

Net Income
Increase (Decrease)

Contribution margin

($ 14,640)*

$ 0

14,640

Fixed costs

Cost of goods sold

$ 15,360

( 100%-92%= 8% of ($ 192,000)

$ 7,680**

$ 7,680

Selling and administrative

$ 22,000

( 100%-60%= 40% of $ 55,000)

$ 11,000***

$ 11,000

Total fixed expenses

37,360

$18,680

18,680

Income (loss) from operations

(Contribution margin – Total fixed expenses)

($ 52,000)

($ 18,680)

33,320

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