Question

*Problem 12-5 Sarasota Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from certions Division Sales Cost of goods sold Selling and administrative expenses Income (loss) from operations $250,000 204,000 76,600 3 (30,600) $199,000 190,000 55,000 $ (46,000) $499,000 297,000 56,000 $146,000 $443,000 246,000 52.000 $145,000 Analysis reveals the following percentages of variable costs in each division I Cost of goods sold Selling and administrative expenses 71% 37 II 91 61 TV 73% 81% 9 4 Discontinuance of any division would save 50% of the fined 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 Compute the contribution margin for Divisions 1 and 11. (Enter negative amounts using either a negative sign preceding the number .g.-5 or parentheses eg. (45). Division 1 Division II Contribution margin Prepare an incremental analysis concerning the possible discontinuance of Division 1. Round answers to sign preceding the number eg.-5 or parentheses g. (45).) decimal e s 1525. Iam decreases et income the enter the amount Continue Eliminate Increase (Decrease Contribution margin Foxed costs Cost of goods sold Selling and administrative Total Fixed expenses Income (los) from operations Hound answers to decimal places . 1525. If amont decreases net income there the Prepare an incremental analysis concerning the possible discontinuance of ereceding the number eg er parentheses

Answer 1

Calculation of variable and fixed portion:-
	Division
	I	II	III	IV
a. Total Cost of Goods sold	$       204,000	$   190,000	297,000	$   246,000
b. Cost of Goods sold (variable portion)	71%	91%	81%	73%
c. Variable Cost of Goods sold (a*b)	$       144,840	$   172,900	$              240,570	$   179,580
d. Fixed Cost of Goods sold (a-c)	$         59,160	$      17,100	$                56,430	$     66,420
	I	II	III	IV
a. Total Selling and administrative expenses	$         76,600	$      55,000	56,000	$     52,000
b. Selling and administrative expenses (variable portion)	37%	61%	49%	58%
c. Variable Selling and administrative expenses (a*b)	$         28,342	$      33,550	$                27,440	$     30,160
d. Fixed Selling and administrative expenses (a-c)	$         48,258	$      21,450	$                28,560	$     21,840
Calculation of Contribution Margin for Division I and II:-
SARASOTA COMPANY
Contribution margin
For the Quarter ended March 31, 2017
	Division
	I	III
Sales	$       250,000	$   199,000
Variable Costs
Cost of Goods sold	$       144,840	$   172,900
Selling and administrative expenses	$         28,342	$      33,550
Total Variable Costs	$       173,182	$   206,450
Contribution margin	$         76,818	$      (7,450)
Incremental Analysis concerning posible discontinuance of Division I :-
SARASOTA COMPANY
Incremental Analysis (discontinuance of Division I)
	Continue	Eliminate	Net Income Increase (Decrease)
Contribution margin	$76,818	$0	-$76,818
Fixed Costs
Cost of Goods sold	$59,160	$29,580	$29,580
Selling and administrative expenses	$48,258	$24,129	$24,129
Total Fixed Costs	$107,418	$53,709	$53,709
Income (loss) from operations	-$30,600	-$53,709	-$23,109
Incremental Analysis concerning posible discontinuance of Division II :-
SARASOTA COMPANY
Incremental Analysis (discontinuance of Division II)
	Continue	Eliminate	Net Income Increase (Decrease)
Contribution margin	-$7,450	$0	$7,450
Fixed Costs
Cost of Goods sold	$17,100	$8,550	$8,550
Selling and administrative expenses	$21,450	$10,725	$10,725
Total Fixed Costs	$38,550	$19,275	$19,275
Income (loss) from operations	-$46,000	-$19,275	$26,725
Divison I	Continue
Divison II	Discontinue
CVP Income Statement if Division II is discontinued :-
SARASOTA COMPANY
CVP Income Statement
For the Quarter ended March 31, 2017
	Divisions			Total
	I	III	IV
Sales	$       250,000	$   499,000	$              443,000	1,192,000
Variable Costs
Cost of Goods sold	$       144,840	$   240,570	$              179,580	564,990
Selling and administrative expenses	$         28,342	$      27,440	$                30,160	85,942
Total Variable Costs	$       173,182	$   268,010	$              209,740	650,932
Contribution margin	$         76,818	$   230,990	$              233,260	$   541,068
Fixed Costs
Cost of Goods sold				190,560
Selling and administrative expenses				109,383
Total Fixed Costs				299,943
Income (loss) from Operations				241,125
50% fixed cost of Division II got eliminated.
	I	III	IV	II	Total
Fixed Cost of Goods sold	$         59,160	$      56,430	$                66,420	$     17,100	$ 199,110
Less: 50% cost of Divison II (17100*50%)					$     8,550
Total fixed cost of goods sold after elimation of Division II					$ 190,560
Fixed Selling and administrative expenses	$         48,258	$      28,560	$                21,840	$     21,450	$ 120,108
Less: 50% cost of Divison II (21450*50%)					$   10,725
Total fixed Selling and administrative expenses after elimation of Division II					$ 109,383

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