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 $211,600 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.                                                   Prepare an incremental analysis for division 1 to include contribution margin, cost of goods sold, selling and adm, total fixed expense. For   both countining and elimentated

Division I II III IV Sales $245,000 $197,000 $504,000 $450,000 Cost of goods sold 200,000 191,000 301,000 249,000 Selling and administrative expenses 72,400 63,000 58,000 50,000 Income (loss) from operations $ (27,400) $ (57,000) $145,000 $151,000

Explanation / Answer

Incremental Analysis as to whether Division I should be eliminated or not:

Contribution margin income statement:

Division I should not be discontinued, as overall operating income would decrease by $ 21,682, if it is.

Continue Division I Discontinue Division I $ $ Sales 1,396,000 1,151,000 Variable costs 878,286 704,050 Contribution margin 517,714 446,950 Fixed expenses Manufacturing 187,620 160,620 Selling and administrative 118,494 96,412 Total fixed costs and expenses 306,114 257,032 Operating income 211,600 189,918

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