Problem 20-5A (Part Level Submission) Brislin Company has four operating divisio
ID: 2540674 • Letter: P
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Problem 20-5A (Part Level Submission) Brislin Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $205,000 and the following divisional results.
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Problem 20-5A (Part Level Submission) Brislin Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $205,000 and the follovwing divisional results. Division IV Sales Cost of goods sold Selling and administrative S247,000 $198,000 $501,000 $448,000 200,000 190,000 298,000 254,000 64,000 63,000 45,000 75,000 Income (loss) from operations $140,000 $149,000 (28,000) (56,000) Analysis reveals the folloing percentages of variable costs in each division. Cost of goods sold Selling and administrative IV 78 % 57 67 % 88 % 81 % 38 57 50 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
Brislin Company Division I II III IV Sales 2,47,000 1,98,000 5,01,000 4,48,000 COGS 2,00,000 1,90,000 2,98,000 2,54,000 Selling & Administrative Expenses 75,000 64,000 63,000 45,000 Income(Loss) from Operations -28,000 -56,000 1,40,000 1,49,000 Variable Cost Portion I II III IV COGS 67% 88% 81% 78% Selling & Administrative Expenses 38% 57% 50% 57% Variable Cost Portion I II III IV COGS 1,34,000 1,67,200 2,41,380 1,98,120 (COGS* Variable Cost Portion) Selling & Administrative Expenses 28,500 36,480 31,500 25,650 (S&A Ex* Variable Cost Portion) Total Variable Cost 1,62,500 2,03,680 2,72,880 2,23,770 A Brislin Company Division I II III IV Sales 2,47,000 1,98,000 5,01,000 4,48,000 Less: Variable Cost Above 1,62,500 2,03,680 2,72,880 2,23,770 Contribution Margin 84,500 -5,680 2,28,120 2,24,230 B1 Brislin Company Division I Continue Eliminate Net Income Contribution Margin 84,500 0 -84,500 Fixed Cost: COGS 66,000 33,000 33,000 (COGS*(1- Variable Cost Portion)) (50% Reduction) Selling & Administrative Expenses 46,500 23,250 23,250 (S&A Ex* (1-Variable Cost Portion)) (50% Reduction) Total Fixed Expense 1,12,500 56,250 56,250 Income(Loss) from Operations -28,000 -56,250 -28,250 Result Discontinuance will lead to more losses B2 Brislin Company Division II Continue Eliminate Net Income Contribution Margin -5,680 0 5,680 Fixed Cost: COGS 22,800 11,400 11,400 (COGS*(1- Variable Cost Portion)) (50% Reduction) Selling & Administrative Expenses 27,520 13,760 13,760 (S&A Ex* (1-Variable Cost Portion)) (50% Reduction) Total Fixed Expense 50,320 25,160 25,160 Income(Loss) from Operations -56,000 -25,160 30,840 Result Discontinuance will help reducing the losses
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