By how much would total income change if the Weak division were dropped? b. In r

Question

By how much would total income change if the Weak division were dropped?

b. In response to a growing awareness of gluten allergies, Oriole Bakery tried using gluten-free flour in its three most popular cookies. After several attempts and a lot of inedible cookies, the company perfected new recipes that yield delicious gluten-free cookies. The costs of producing a batch of 100 cookies are as follows:

1.5

Oriole’s flour supplier has announced a shortage of gluten-free flour. As a result, Oriole will only be able to purchase 36,200 pounds of flour.

How many batches of each type of cookie should the company bake?

What will the company’s contribution margin be?

Pharoah, Inc. operates three divisions, Weak, Average, and Strong. As it turns out, the Weak division has the lowest operating income, and the president wants to close it. “Survival of the fittest, I say!” was his response when the Weak division’s manager insisted that his division earned money for the company. Following is the most recent financial analysis for each division:
Weak Average Strong Sales revenue $125,600 $349,200 $543,800 Variable expenses 52,500 198,700 309,600 Contribution margin 73,100 150,500 234,200 Direct expenses 37,400 75,100 117,000 Allocated expenses 52,100 52,100 52,100 Operating income $(16,400 ) $23,300 $65,100

Explanation / Answer

Solution 1:

Therefore if weak division is dropped then total income of the company will decreased by $35,700.

Note: As multiple question are posted, i have answered first question as per chegg policy. Kindly post separate question for answer of remaining question.

Incremental Analysis - Continue Weak division (Alt 1) or Eliminate Weak division (Alt 2) Particulars Continue Weak division (Alt 1) Eliminate Weak division (Alt 2) Net Income Increase (Decrease) - Alt 2 Amount Amount Sales $125,600.00 $0.00 -$125,600.00 Variable expenses $52,500.00 $0.00 -$52,500.00 Contribution $73,100.00 $0.00 -$73,100.00 Fixed Expenses: Direct expenses $37,400.00 $0.00 -$37,400.00 Allocated expenses $52,100.00 $52,100.00 $0.00 Net Income -$16,400.00 -$52,100.00 -$35,700.00

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