Gutierrez Company has four operating divisions. During the first quarter of 2014
ID: 2504249 • Letter: G
Question
Gutierrez Company has four operating divisions. During the first quarter of 2014, the company reported aggregate income from operations of $221,200 and the following divisional results.Division I II III IV Sales $254,900 $195,600 $501,900 $447,500 Cost of goods sold 197,900 191,500 303,700 248,700 Selling and administrative expenses 71,800 55,100 60,100 49,900 Income (loss) from operations $ (14,800) $ (51,000) $138,100 $148,900
Analysis reveals the following percentages of variable costs in each division.
I II III IV Cost of goods sold 74% 92% 77% 76% Selling and administrative expenses 38% 71% 51% 61%
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 $221,200 and the following divisional results.
Division I II III IV Sales $254,900 $195,600 $501,900 $447,500 Cost of goods sold 197,900 191,500 303,700 248,700 Selling and administrative expenses 71,800 55,100 60,100 49,900 Income (loss) from operations $ (14,800) $ (51,000) $138,100 $148,900
Analysis reveals the following percentages of variable costs in each division.
I II III IV Cost of goods sold 74% 92% 77% 76% Selling and administrative expenses 38% 71% 51% 61%
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 Open Show Work Question 8 Gutierrez Company has four operating divisions. During the first quarter of 2014, the company reported aggregate income from operations of $221,200 and the following divisional results.
Division I II III IV Sales $254,900 $195,600 $501,900 $447,500 Cost of goods sold 197,900 191,500 303,700 248,700 Selling and administrative expenses 71,800 55,100 60,100 49,900 Income (loss) from operations $ (14,800) $ (51,000) $138,100 $148,900
Analysis reveals the following percentages of variable costs in each division.
I II III IV Cost of goods sold 74% 92% 77% 76% Selling and administrative expenses 38% 71% 51% 61%
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:
Fixed Cost of Goods Sold (Continue) = 197900*(1-0.74) = 51454
Fixed Selling and administrative (Continue) =71800*(1-0.38) = 44516
Fixed Cost of Goods Sold (Eliminate) = 197900*(1-0.74) = 51454*50% = 25727
Fixed Selling and administrative (Eliminate) =71800*(1-0.38) = 44516*50% = 22258
Thanks.
Continue Eliminate Net Income Increase (Decrease) Contribution Margin 81170 0 -81170 Fixed Expenses
Cost of goods sold 51454 25727 -25727 Selling and administrative 44516 22258 -22258 Total fixed expenses 95970 47985 -47985 Income (loss) from operations -14800 -47985 -33185
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