Dobles Company has the following annual contribution margin income statement sho
ID: 2449078 • Letter: D
Question
Dobles Company has the following annual contribution margin income statement shown below by total company and for its two divisions:
Total Division A Division B
Sales 2,000,000 1,200,000 800,000
Less Variable Expenses 1,450,000 _800,000 _650,000
Contribution Margin 550,000 400,000 150,000
Less Traceable Fixed Expenses _350,000 _ 250,000 _100,000
Segment Margin 200,000 150,000 50,000
Less Common Fixed Expenses _ 150,000 _ 50,000 _100,000
Net Income 50,000 100,000 (50,000)
After reviewing the division numbers, Dobles Company is considering closing Division B. If Division B is closed, 40% of Division B’s traceable fixed expenses would continue to be incurred by the company. Also, if Division B is closed, Division A would lose 1/4 of its sales.
Net out the losses and gains associated with the decision to close Division B and make a conclusion
Explanation / Answer
Benefit: Closing the division B will reduce the traceable fixed expenses by 60%.
Benefit = 250,000 x 60% = 150,000
Loss: closing division B will reduce the sale of Division A by 25% which will ultimately reduce division A’s contribution margin by 25%.
Loss: 550,000x25% = 137,500
Net benefit = 150,000-137,500
= 12,500
Therefore the division should be closed.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.