Consider the following information regarding Wayne Manufacturing Company and the

Question

Consider the following information regarding Wayne Manufacturing Company and the following instructions. This is similar to Problems 20-5A and 20-5B in our textbook. Wayne Manufacturing Company has four operating divisions. During the first quarter of 2016, the company reported the divisional results shown below and aggregate income shown below. Division: North South East West Aggregate Income Sales $454,410 $347,490 $276,210 $160,380 Cost of goods sold 267,300 222,750 240,570 133,650 Selling and administrative expenses 53,460 71,280 57,915 62,370 Income (loss) from operations $133,650 $53,460 $(22,275) $(35,640) $129,195 Analysis reveals the following percentages of variable costs in each division. Division: North South East West Cost of goods sold 70% 80% 75% 90% Selling and administrative expenses 40% 50% 65% 70% 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 (East and West). Consensus is that one or both of the divisions should be discontinued. Instructions - Your solutions should be clearly labeled on Solutions of this workbook. (a) Compute the contribution margin for the East and West Divisions. (See illustration 20-17 for guidance, if needed.) (b) Prepare an incremental analysis concerning the possible discontinuance of (1) East Division and (2) West Division. What course of action do you recommend for each division? Should either be closed? (See illustration 20-18 for guidance, if needed.) (c) Prepare a columnar condensed income statement for Wayne Manufacturing, assuming the division(s) that should be eliminated are eliminated. Use the CVP format. Remember: Closed division's unavoidable fixed costs are allocated equally to the continuing divisions. (See Illustrations 20-16 and 20-17 for guidance, if needed.)

Explanation / Answer

North South East West Total A Sales $454,410 $347,490 $276,210 $160,380 $1,238,490 B Cost of Goods sold $267,300 $222,750 $240,570 $133,650 $864,270 C Selling & administrative expenses $53,460 $71,280 $57,915 $62,370 $245,025 D=A-B-C Income (loss)from operations $133,650 $53,460 ($22,275) ($35,640) $129,195 Variable costs: E percentage of cost of goods sold 70% 80% 75% 90% F Percentage of selling & administrative expenses 40% 50% 65% 70% G=B*E Variable cost of goods sold $187,110 $178,200 $180,428 $120,285 H=C*F Variable cost of Selling & admin.cost $21,384 $35,640 $37,645 $43,659 I=G+H Total Variable cost $208,494 $213,840 $218,072 $163,944 J=B-G Fixed cost of goods sold $80,190 $44,550 $60,143 $13,365 K=C-H Fixed Selling & admin cost $32,076 $35,640 $20,270 $18,711 L=J+K Total Fixed cost $112,266 $80,190 $80,413 $32,076 (a). M=A-I CONTRIBUTION MARGIN $245,916 $133,650 $58,138 ($3,564) DIVISION Contribution margin East $58,138 West ($3,564) 40206.5 .(b) INCREMENTAL ANALYSIS FOR DISCONTINUANCE East Divn West Divn A Contribution margin $58,138 ($3,564) B Fixed cost $80,413 $32,076 C=A-B Net loss if operation is continued ($22,275) ($35,640) Loss if discontinued ($40,206) ($16,038) (50% of fixed cost) Incremental loss is higher if discontinued for East Division Incremental loss is lower if discontinued for West Division West Division should be closed since the contribution margin is negative Loss if discontinued will be lower if West Division is closed .(c) Income Statement after closure of West Division North South East Total A Sales $454,410 $347,490 $276,210 $1,078,110 B Variable costs $208,494 $213,840 $218,072 $640,406 C=A-B Contribution Margin $245,916 $133,650 $58,138 $437,704 D Fixed costs $112,266 $80,190 $80,413 $272,869 E Allocation of Closed division costs $5,346 $5,346 $5,346 $16,038 (16038/3) 5346 F=C-D-E Income (loss) from operations $128,304 $48,114 ($27,621) $148,797

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

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