(c) Prepare a columnar condensed income statement for Wayne Manufacturing, assum
ID: 2548696 • Letter: #
Question
(c) Prepare a columnar condensed income statement for Wayne Manufacturing, assuming the division(s) that should be eliminated are eliminated. Use the CVP format. Remember: Closed division's unavoidable fixed costs are allocated equally to the continuing divisions. (See Illustrations 20-16 and 20-17 for guidance, if needed.)
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Wayne Manufacturing Company has four operating divisions. During the first quarter of 2016, the company reported the divisional results shown below and aggregate income shown below. Division: North South East West Aggregate Income Sales $ 459,000 $ 351,000 $ 279,000 $ 162,000 Cost of goods sold 270,000 225,000 243,000 135,000 Selling and administrative expenses 54,000 72,000 58,500 63,000 Income (loss) from operations $ 135,000 $ 54,000 $ (22,500) $ (36,000) $ 130,500 Analysis reveals the following percentages of variable costs in each division. Division: North South East West Cost of goods sold 70% 80% 75% 90% Selling and administrative expenses 40% 50% 65% 70% 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 (East and West). Consensus is that one or both of the divisions should be discontinued. Instructions - Your solutions should be clearly labeled on Solutions of this workbook. (a) Compute the contribution margin for the East and West Divisions. (See illustration 20-17 for guidance, if needed.) (b) Prepare an incremental analysis concerning the possible discontinuance of (1) East Division and (2) West Division. What course of action do you recommend for each division? Should either be closed? (See illustration 20-18 for guidance, if needed.)(c) Prepare a columnar condensed income statement for Wayne Manufacturing, assuming the division(s) that should be eliminated are eliminated. Use the CVP format. Remember: Closed division's unavoidable fixed costs are allocated equally to the continuing divisions. (See Illustrations 20-16 and 20-17 for guidance, if needed.)
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1.Contribution Margin East West Sales Variable costs COGS Selling and Adm Total Variable Expense Contribution Margin 2. Incremental Analysis - East Division East Continue Eliminate Net Income Increase Contribution Margin Fixed Costs COGS Selling and Adm. Total Fixed Expenses Income (Loss) 2. Incremental Analysis - West Division East Continue Eliminate Net Income Increase Contribution Margin Fixed Costs COGS Selling and Adm. Total Fixed Expenses Income (Loss) 3. Contribution Margin North South East Total Sales Variable Cost COGS Selling and Adm Toal Variable Expense Contribution Margin Fixed Costs COGS Selling and Adm Total Fixed Expense Income (Loss)Explanation / Answer
Contribution Margin Computation
East
West
Sales
279000
162000
Variable costs
COGS
182250
121500
Selling and Admin Cost
38025
44100
Total variable costs
220275
165600
Contribution
58725
(3600)
b) Incremental Analysis
-Discontinuance of East Division
Continue
Eliminate
Net increase
Contribution margin
58725
0
(58725)
Fixed Costs
(a)COGS
60750
30375
30375
(b) Selling and Admin
20475
10237.50
10237.5
Total FC
81225
40612.5
40612.5
Income(loss)
(22500)
(40612.5)
(18112.5)
Discontinuance of west Division
Continue
Eliminate
Net increase
Contribution margin
(3600)
0
3600
Fixed Costs
(a)COGS
13500
6750
6750
(b) Selling and Admin
18900
9450
9450
Total FC
32400
16200
16200
Income(loss)
(36000)
(16200)
19800
Course of action recommended-
Part C- Contribution margin
Particulars
North
South
Sales
459000
351000
Variable costs
(a) COGS
189000
180000
(b) Selling and admin Cost
21600
36000
Total VC
210600
216000
Contribution
248400
135000
Fixed costs
(a)COGS
81000+18562.5=99562.50
45000+18562.50=63562.50
(b) Selling and admin
32400+9843.75=42243.75
36000+9843.75=45843.75
Total FC
141806.25
109406.25
Income/(loss)
106593.75
25593.75
Note:- unavoidable fixed costs of east and west apportioned to North and south equally are:-
Fixed COGS- 30375+6750=37125 divided equally =18562.5,
Selling and admin costs=10237.5+9450=19687.5 divided equally=9843.75
Contribution Margin Computation
East
West
Sales
279000
162000
Variable costs
COGS
182250
121500
Selling and Admin Cost
38025
44100
Total variable costs
220275
165600
Contribution
58725
(3600)
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