Brislin Company has four operating divisions. During the first quarter of 2017,

Question

Brislin Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $231,300 and the following divisional results. Analysis reveals the following percentages of variable costs in each division. 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. 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).) Prepare an incremental analysis concerning the possible discontinuance of Division I. (Round answers to 0 decimal places, e.g. 1525. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Explanation / Answer

Solution :

I

II

SALES

A

      253,000

      195,000

COGS

      197,000

      190,000

VARIABLE COST

B

      131,990

(197000x67%)

      169,100

(190000x89%)

SELLING & ADMINISTRATIVE

         75,700

         57,000

VARIABLE COST

C

         28,009

(75700x37%)

         35,340

(57000x62%)

Contribution Margin

A - B- C

         93,001

-         9,440

b1. INCREMENTAL ANALYSIS

CONTINUE

ELIMINATE

NET INCOME

INCREASE (DECREASE)

CONTRIBUTION MARGIN

        93,001

                  -  

             93,001

FIXED COST*

COGS

        65,010

         32,505

             32,505

SELLING & ADMINISTRATIVE

        47,691

         23,846

             23,846

TOTAL FIXED EXPENSE

      112,701

         56,351

             56,351

INCOME (LOSS) FROM OPERATION

-      19,700

-       56,351

             36,651

It is better to continue division I as its loss (19700) is lower as compared to when eliminated (56351)

*FIXED COST

COGS

SELLING & ADMINISTRATIVE

TOTAL

      197,000

         75,700

VARIABLE (as calculated in a)

      131,990

         28,009

FIXED COST

        65,010

         47,691

1. Contribution Margin

I

II

SALES

A

      253,000

      195,000

COGS

      197,000

      190,000

VARIABLE COST

B

      131,990

(197000x67%)

      169,100

(190000x89%)

SELLING & ADMINISTRATIVE

         75,700

         57,000

VARIABLE COST

C

         28,009

(75700x37%)

         35,340

(57000x62%)

Contribution Margin

A - B- C

         93,001

-         9,440

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