Problem 20-5A (Part Level Submission) Brislin Company has four operating divisio
ID: 2575824 • Letter: P
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 $207,400 and the following divisional results. Division IV Sales Cost of goods sold Selling and administrative expenses Income (loss) from operations $249,000 $200,000 $498,000 $446,000 192,000 305,000 248,000 59,000 45,000 $(27,600) (52,000) $134,000 $153,000 205,000 71,600 60,000 Analysis reveals the following percentages of variable costs in each division IV 74 % 59 Cost of goods sold Selling and administrative expenses 40 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 68 % 88 % 81% 59 47 (a) Compute the contribution margin for Divisions I and II. (Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g. (45).) Division Division II Contribution marginsExplanation / Answer
Answer:
(a) Compute the contribution margin for Divisions I and II
Division I
Division II
Sales
$249,000
$200,000
Variable costs
Cost of goods sold
139,400
168,960
Selling and administrative
28,640
42,000
Total variable expenses
168,040
210,960
Contribution margin
$80,960
($10,960)
__________________________________________________
(b)(1) Prepare an incremental analysis concerning the possible discontinuance of Division II
Division II
Continue
Eliminate
Net Income Increase (Decrease)
Contribution margin (above)
($10,960)
$0
$10,960
Fixed costs
Cost of goods sold
23,040
11,520
11,520
Selling and administrative
18,000
9,000
9,000
Total fixed expenses
41,040
20,520
20,520
Income (loss) from operations
($52,000)
($20,520)
$31,480
Prepare an incremental analysis concerning the possible discontinuance of Division I.
Division I
Continue
Eliminate
Net Income Increase (Decrease)
Contribution margin (above)
$80,960
$0
($80,960)
Fixed costs
Cost of goods sold
65,600
32,800
32,800
Selling and administrative
42,960
21,480
21,480
Total fixed expenses
108,560
54,280
54,280
Income (loss) from operations
($27,600)
($54,280)
($26,680)
_______________________________________________________
What course of action do you recommend for each division?
Answer:
Division II should be eliminated due to it producing a negative contribution margin of ($52,000). This would also increase operations income $31,480 if discontinued Division II.
________________________________________________
Prepare a columnar condensed income statement
BRISLIN COMPANY
CVP Income Statement
For the Quarter Ended March 31, 2017
Divisions
I
III
IV
Total
Sales
$249,000
$498,000
$446,000
$1,193,000
Variable costs
Cost of goods Sold
139,400
247,050
183,520
569,970
Selling and administrative
28,640
27,730
26,550
82,920
Total variable expenses
168,040
274,780
210,070
652,890
Contribution margin
80,960
223,220
235,930
540,110
Fixed costs
Cost of goods Sold (1)
68,800
61,150
67,680
197,630
Selling and administrative (2)
45,960
34,220
21,450
101,630
Total Fixed Espenses
114,760
95,370
89,130
299,260
Income (loss) from operations
($33,800)
$127,850
$146,800
240,850
Division I
Division II
Sales
$249,000
$200,000
Variable costs
Cost of goods sold
139,400
168,960
Selling and administrative
28,640
42,000
Total variable expenses
168,040
210,960
Contribution margin
$80,960
($10,960)
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