Gutierrez Company has four operating divisions. During the first quarter of 2014
ID: 2503654 • Letter: G
Question
Gutierrez Company has four operating divisions. During the first quarter of 2014, the company reported aggregate income from operations of $216,800 and the following divisional results.Division I II III IV Sales $252,300 $198,500 $500,400 $452,800 Cost of goods sold 197,400 192,900 297,300 253,400 Selling and administrative expenses 71,700 63,600 64,600 46,300 Income (loss) from operations $ (16,800) $ (58,000) $138,500 $153,100
Analysis reveals the following percentages of variable costs in each division.
I II III IV Cost of goods sold 71% 89% 78% 77% Selling and administrative expenses 41% 68% 49% 60%
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. Gutierrez Company has four operating divisions. During the first quarter of 2014, the company reported aggregate income from operations of $216,800 and the following divisional results.
Division I II III IV Sales $252,300 $198,500 $500,400 $452,800 Cost of goods sold 197,400 192,900 297,300 253,400 Selling and administrative expenses 71,700 63,600 64,600 46,300 Income (loss) from operations $ (16,800) $ (58,000) $138,500 $153,100
Analysis reveals the following percentages of variable costs in each division.
I II III IV Cost of goods sold 71% 89% 78% 77% Selling and administrative expenses 41% 68% 49% 60%
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. Open Show Work SHOW SOLUTION SHOW SOLUTION SHOW SOLUTION SHOW ANSWER SHOW ANSWER SHOW ANSWER LINK TO TEXT LINK TO TEXT LINK TO TEXT Gutierrez Company has four operating divisions. During the first quarter of 2014, the company reported aggregate income from operations of $216,800 and the following divisional results.
Division I II III IV Sales $252,300 $198,500 $500,400 $452,800 Cost of goods sold 197,400 192,900 297,300 253,400 Selling and administrative expenses 71,700 63,600 64,600 46,300 Income (loss) from operations $ (16,800) $ (58,000) $138,500 $153,100
Analysis reveals the following percentages of variable costs in each division.
I II III IV Cost of goods sold 71% 89% 78% 77% Selling and administrative expenses 41% 68% 49% 60%
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.
Explanation / Answer
Hi,
Please find the answer as follows:
Notes:
Continue:
Fixed Cost of Goods Sold = Cost of Goods Sold*(1-Variable Cost %) = 197400*(1-0.71) = 57246
Fixed Selling and administrative = Selling and administrative*(1-Variable Cost %) = =71700*(1-0.41) = 42303
Eliminate:
Fixed Cost of Goods Sold = Fixed Cost of Goods Sold*50% = 57246*50% = 28623
Fixed Selling and administrative = Selling and administrative*50% = 42303*50% = 21152
Thanks.
Division I Continue Eliminate Net Income
Inc / (Dec) Contribution margin (above) $82,749 $0 ($82,749) Fixed costs Cost of goods sold 57,246 28,623 28,623 Selling and administrative 42,303 21,152 21,152 Total fixed expenses 99,549 49,775 49,775 Income (Loss) from Operations ($16,800) ($49,775) ($32,975)
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