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 $504,900 $386,100 $306,900 $178,200 Cost of goods sold 297,000 247,500 267,300 148,500 Selling and administrative expenses 59,400 79,200 64,350 69,300 Income (loss) from operations $148,500 $59,400 $(24,750) $(39,600) $143,550 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. ***USE IN EXCEL AND PLEASE SHOW FORMULAS*** (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.) 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 $504,900 $386,100 $306,900 $178,200 Cost of goods sold 297,000 247,500 267,300 148,500 Selling and administrative expenses 59,400 79,200 64,350 69,300 Income (loss) from operations $148,500 $59,400 $(24,750) $(39,600) $143,550 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. ***USE IN EXCEL AND PLEASE SHOW FORMULAS*** (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

Note: I have tried my best for correct solution, still need any further help, please ask in comment.

(a) East West Sales $306,900 $178,200 Variable costs Cost of goods sold(COGS x Variable%) 200,475 133,650 Selling and administrative (S&A x Vaiable%) 41,828 48,510 Total variable expenses 242,303 182,160 Contribution margin $64,598 ($3,960) (b) (1) Net Income Increase East Continue Eliminate(50% Fixed Cost is reduced) (Decrease) Contribution margin (above) $64,598 $0 ($64,598) Fixed costs Cost of goods sold(COGS x 100%-Variable%) 66,825 33,413 -33,413 Selling and administrative (S&A x 100%-Vaiable%) 22,523 11,261 -11,261 Total fixed expenses 89,348 44,674 -44,674 Income (loss) from operations ($24,750) ($44,674) ($19,924) (2) Net Income Increase West Continue Eliminate(50% Fixed Cost is reduced) (Decrease) Contribution margin (above) ($3,960) $0 $3,960 Fixed costs Cost of goods sold(COGS x 100%-Variable%) 14,850 7,425 -7,425 Selling and administrative (S&A x 100%-Vaiable%) 20,790 10,395 -10,395 Total fixed expenses 35,640 17,820 -17,820 Income (loss) from operations ($39,600) ($17,820) $21,780 West should be eliminated as its negative contribution margin is $3,960. Income from operations would increase $21,780 if West is eliminated. East should be continued because it is producing positive contribution margin of $64,598. Income from operations will decrease $19,924 by discontinuing this division. (c ) WAYNE MANUFACTURING COMPANY CVP Income Statement For the Quarter Ended March 31, 2016 Divisions North South East Total Sales $504,900 $386,100 $306,900 $1,197,900 Variable costs Cost of goods sold 207900 198000 200475 606375 Selling and administrative 23760 39600 41827.5 105187.5 Total variable costs 231660 237600 242302.5 711562.5 Contribution margin $273,240 $148,500 $64,598 $486,338 Fixed costs Cost of goods sold (1) 91575 51975 69300 212850 Selling andadministrative (2) 39105 43065 25987.5 108157.5 Total fixed costs 130680 95040 95287.5 321007.5 Income (loss) from operations $142,560 $53,460 ($30,690) $165,330 (1) Division’s fixed cost of goods sold plus 1/3 of West’s unavoidable fixed cost of goods sold [$148,500 X (100% – 90%) X 50% = $7,425]. Each division’s share is $2,475. (2) Division’s fixed selling and administrative expense plus 1/3 of West’s unavoidable fixed selling and administrative expenses [$69,300 X (100% – 70%) X 50% = $10,395]. Each division’s share is $3,465.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

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