Discontinuance of any division would save 50% of the fixed costs and expenses fo

ID: 2523531 • Letter: D

Question

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 a columnar condensed income statement for Brislin Company, assuming Division II is eliminated. Division II’s unavoidable fixed costs are allocated equally to the continuing divisions. (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).)

Brislin Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $212,400 and the following divisional results.
Division I II III IV Sales $250,000 $199,000 $498,000 $449,000 Cost of goods sold 204,000 191,000 295,000 247,000 Selling and administrative expenses 74,600 63,000 60,000 49,000 Income (loss) from operations $ (28,600) $ (55,000) $143,000 $153,000
Analysis reveals the following percentages of variable costs in each division.
I II III IV Cost of goods sold 72 % 88 % 80 % 76 % Selling and administrative expenses 40 60 51 61

BRISLIN COMPANY CVP Income Statement For the Quarter Ended March 31, 2017 Divisions I III IV Total Sales $

Variable costs Cost of goods sold

Selling and administrative

Total variable costs

Contribution margin

Fixed costs Cost of goods sold

Selling and administrative

Total fixed costs

Income (loss) from operations $

Explanation / Answer

BRISLIN COMPANY

CVP Income Statement

For the Quarter Ended March 31, 2017

Division

III

Total

Sales

250,000

498,000

449,000

1,197,000

Variable costs

Cost of goods sold (WN 1)

146,880

236,000

187,720

570,600

Selling and administrative (WN 2)

29,840

30,600

29,890

90,330

Total variable costs

176,720

266,600

217,610

660,930

Contribution margin (Sales – Total variable cost)

73,280

231,400

231,390

536,070

Fixed costs

Cost of goods sold (WN 3)

60,940

62,820

63,100

186,860

Selling and administrative (WN 4)

48,960

33,600

23,310

105,870

Total fixed costs

109,900

96,420

86,410

292,730

Income (loss) from operations

(36,620)

Loss

134,980

144,980

243,340

Working Notes (WN):

1-Cost of goods sold (Variable)

Division I: $ 204,000 X 72 % =$ 146,880

Division III: $ 295,000X 80 % =$ 236,000

Division IV: $ 247,000X 76 % =$ 187,720

2- Selling and administrative (Variable)

Division I: $ 74,600 X 40 % =$ 29,840

Division III: $ 60,000 X 51 % =$ 30,600

Division IV: $ 49,000 X 61 % =$ 29,890

3- Cost of goods sold (Fixed)

Discontinuance of any division would save 50% of the fixed costs and expenses for that division.

Division’s II fixed cost of goods sold

= [$ 191,000 X (100% -88%) X 50%

=$ 22,920 X 50%

=$ 11,460

This $ 11,460 will be distributed among Division I, III and IV.

Each division’s share is $ 11,460 / 3 =$ 3,820

Division I: $ 204,000 X (100% -72 %) =$ 57,120 + $ 3,820= $ 60,940

Division III: $ 295,000X (100% -80 %) =$ 59,000 + $ 3,820= $ 62,820

Division IV: $ 247,000X (100% - 76 %) =$ 59,280 + $ 3,820= $ 63,100

4- Selling and administrative (Fixed)