Question

Franklin Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated FRANKLIN COMPANY Income Statements for the Year 2018 Segment Sales $ 171,000 $245,000 $261,000 Cost of goods sold (127,000) (75,000) (80,000) Sales commissions (15,880) (29,000) (32,000) Contribution margin 29,800 141,000 149,000 General fixed operating expenses (allocation of president's (38,000) (43,000) (39,000) salary) Advertising expense (specific to individual divisions) (5,000) (19,000) Net income $ (14,000) $ 79,000 $110,000 Required 0. Prepare a schedule of relevant sales and costs for Segment A b. Prepare comparative income statements for the company as a whole under two alternatives: (1) the retention of Segment A and (2) the elimination of Segment A

1n

Answer 1

1.

Relevant revenue - 171000

Relevant cost - 147000

2. Net income

Keep Seg A - 175000

Eliminate Seg A- 189,000

Please refer detailed working below.

Thanks

D. Relevant Sevenue Scout flere of Segment A__ Pagtiwless Dmount ($) Sales - f less cost of goods sold Sales Coromission 171000 (127000) (15.000) Contsibution 29000 Lese: Advertising expenses (5,000) Net relevant income 24000 Reason! Io solvant costing concept, fou derision making, only direct relevant cost to the segment is Corridased. The general ed overhead' expenses are not Salouant to docision. making. These costs are appostioned costs.. Hence inclemental costs are only considered in Golorant cost » Relevant Revenue LOOD → Relevant cost (123000+ 15000+S0DD) (047000) o Parafit 29000

a) Compartive Income staternent Particulars Keep Seg. a Eliminate Seg. A Sales 677000 socooo Lese: Cost of - goods cold (82000) (155000) Salis commission (76000) (61000) Contribution | 313000 29.9000 Less: General fixed operatingexp (120000) (82000) Adueatising exp (24000) (19000) niet Income -> 175000 189000 Conclusion: As per net profit analysis, it wir better to eliminate "Segment À