Use In excel and show formulas Consider the following information regarding Wayn

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Use In excel and show formulas

Consider the following information regarding Wayne Manufacturing Company and the following instructions. This is similar to Problems 20-5A and 20-5B in our textbook. 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 $504,900 $386,100 $306,900 $178,200 Cost of goods sold 297,000 247,500 267,300 148,500 Selling and administrative expenses 59,400 79,200 64,350 69,300 Income (loss) from operations $148,500 $59,400 $(24,750) $(39,600) $143,550 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.)

Explanation / Answer

Wayne Manufacturing Company

Contribution margin for East and West Divisions

East

West

Sales

$306,900

$178,200

Less: Variable Costs:

Cost of goods sold

$200,475

$133,650

Selling and administrative expenses

$41,828

$48,510

Total variable costs

$242,303

$182,160

Contribution margin

$64,597

($3,960)

East Division – 75% of COGS is variable = $267,300 x 75% = $200,475

West Division- 90% of COGS is variable = $148,500 x 90% = $133,650

East Division = 65% of $64,350 = $41,828

West Division = 70% of $69,300 = $48,510

CM – East Division = $306,900 - $242,303 = $64,597

CM – West Division = $178,200 - $182,160 = -$3,960

East Division

Continue

Discontinue

Net Income/Increase or Decrease

Contribution margin lost

$64,597

$0

($64,597)

Fixed costs:

COGS

$66,825

$33,413

($33,413)

Selling and Administrative expenses

$22,522

$11,261

($11,261)

Total fixed expenses

$89,348

$44,674

($44,674)

operating income/(loss)

($24,750)

($44,674)

($19,924)

West Division -

Continue

Discontinue

Net Income/ Increase or (Decrease)

contribution margin

($3,960)

$0

$3,960

Fixed costs:

COGS

($14,850)

$7,425

($7,425)

Selling and Administration expenses

($20,790)

$10,395

($10,395)

Total fixed expenses

($35,640)

$17,820

($17,820)

Operating income/(loss)

-39,600

-17,820

21,780

            Hence, elimination of East division would increase loss $19,924.

Columnar Condensed Income Statement in CVP format for Wayne Manufacturing assuming West Division is eliminated:

Divisions

North

South

East

Total

Sales

$504,900

$386,100

$306,900.00

$1,197,900.00

Variable costs:

COGS

$207,900

$198,000

$200,475

$606,375

Selling and Administration expenses

$23,760

$39,600

$41,828

$105,188

Total variable cost

$231,660

$237,600

$242,303

$711,563

Contribution margin

$273,240

$148,500

$64,597

$486,337

Fixed cost:

COGS

$89,100

$49,500

$66,825

$205,425

Selling and Administration expenses

$35,640

$39,600

$22,523

$97,763

allocated fixed cost of West Division

5,940

$5,940

$5,940

$17,820

Total fixed cost

$130,680

$95,040

$95,288

$321,008

Operating income/(loss)

$142,560

$53,460

($30,691)

$165,329

Total fixed costs of West Division = $35,640

Less: 50% avoidable                    $17,820

Unavoidable fixed cost                $17,820

The unavoidable fixed cost is allocated equally to each division.

Total 3 divisions, share of each division = $17,820/3 = $5,940

Division

COGS

proportion

fixed cost

North

$297,000

30%

$89,100

South

$247,500

20%

$49,500

East

$267,300

25%

$66,825

Division

Selling and Administration expense

proportion

fixed cost

North

$59,400

60%

$35,640

South

$79,200

50%

$39,600

East

$64,350

35%

$22,523

Contribution margin for East and West Divisions

East

West

Sales

$306,900

$178,200

Less: Variable Costs:

Cost of goods sold

$200,475

$133,650

Selling and administrative expenses

$41,828

$48,510

Total variable costs

$242,303

$182,160

Contribution margin

$64,597

($3,960)

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