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.) 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

Solution a:

Solution b:

Discontinue of East divison will result in to additional loss of $17,931.38, hence east divison should not be discontinued.

Discontinuance of west divison will result in to addtional savings for $19,602 therefore, this divison must be discontinued.

Solution c:

Identification of Variable & Fixed Cost Particulars North South East West Cost of Goods Sold: Total cost of goods sold $267,300.00 $222,750.00 $240,570.00 $133,650.00 % of variable COGS 70% 80% 75% 90% Variable COGS $187,110.00 $178,200.00 $180,427.50 $120,285.00 Fixed COGS $80,190.00 $44,550.00 $60,142.50 $13,365.00 Selling & Administrative Expense: Total Selling & Adminstrative Expense $53,460.00 $71,280.00 $57,915.00 $62,370.00 % of Variable Cost 40% 50% 65% 70% Variable Selling & Administrative Expense $21,384.00 $35,640.00 $37,644.75 $43,659.00 Fixed Selling& Administrative Expense $32,076.00 $35,640.00 $20,270.25 $18,711.00

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