Question

Problem 7-5 (Part Level Submission) Pina Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $212,300 and the following divisional results. Division I II III IV Sales $254,000 $199,000 $501,000 $443,000 Cost of goods sold 204,000 190,000 301,000 247,000 Selling and administrative expenses 69,700 61,000 57,000 55,000 Income (loss) from operations $ (19,700) $ (52,000) $143,000 $141,000 Analysis reveals the following percentages of variable costs in each division. I II III IV Cost of goods sold 67 % 90 % 82 % 75 % Selling and administrative expenses 39 62 50 58 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.

(a) Your answer is correct. 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).) SHOW SOLUTION SHOW ANSWER LINK TO TEXT Attempts: 2 of 15 used

(b1) Your answer is correct. Prepare an incremental analysis concerning the possible discontinuance of Division I. (Round answers to 0 decimal places, e.g. 1525. If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Continue Eliminate Net Income Increase (Decrease) Contribution margin $ 90137 $ 0 $ -90137 Fixed costs    Cost of goods sold 67320 33660 33660    Selling and administrative 42517 21258.5 21258.5       Total fixed expenses 109837 54918.5 54918.5 Income (loss) from operations $ -19700 $ -54919 $ -35218.50 SHOW ANSWER LINK TO TEXT Attempts: 10 of 15 used

(b2) Prepare an incremental analysis concerning the possible discontinuance of Division II. (Round answers to 0 decimal places, e.g. 1525. If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Continue Eliminate Net Income Increase (Decrease) Contribution margin $ $ $ Fixed costs    Cost of goods sold    Selling and administrative       Total fixed expenses Income (loss) from operations $ $ $

Answer 1

	Incremental analysis to discontinuance of Division II
		Continue	Eliminate	Net Income increase/(Decrease)
	Contribution margin(Note)	-$9,820	$0	$9,820
	Fixed Costs
	Cost of goods sold	$19,000	$9,500	$9,500
	Selling and admin expenses	$23,180	$11,590	$11,590
	Total Fixed costs	$42,180	$21,090	$21,090
	Income/(Loss) from operations	-$52,000	-$21,090	$30,910
	Note:
	Sales		$1,99,000
Less:	Variabl expnses:
	Cost of goods sold	$1,71,000
	Selling and admin expenses	$37,820	$2,08,820
	Contribution margin		-$9,820