Brislin Company has four operating divisions. During the first quarter of 2017,

Question

Brislin Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $215,000 and the following divisional results. Division I II III IV Sales $249,000 $200,000 $504,000 $450,000 Cost of goods sold 199,000 191,000 296,000 249,000 Selling and administrative expenses 76,000 63,000 64,000 50,000 Income (loss) from operations $ (26,000) $ (54,000) $144,000 $151,000 Analysis reveals the following percentages of variable costs in each division. I II III IV Cost of goods sold 74 % 88 % 79 % 74 % Selling and administrative expenses 39 60 51 61 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 an incremental analysis concerning the possible discontinuance of Division I.

Prepare an incremental analysis concerning the possible discontinuance of Division II.

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.

Explanation / Answer

1 2 Base - case I II III IV Total Total after discontinuing Div.1 Total after discontinuing Div.2 Sales 249000 200000 504000 450000 1403000 1154000 1203000 Less: COGS 199000 191000 296000 249000 935000 736000 744000 Gross Margin 50000 9000 208000 201000 468000 418000 459000 Less:S&A exp. 76000 63000 64000 50000 253000 177000 190000 Income/(loss) -26000 -54000 144000 151000 215000 241000 269000 Less:50% of Div.1 exp. 38000 Less:50% of Div.2 exp. 31500 Net Income 203000 237500 3….. I III IV Total Sales 249000 504000 450000 1203000 Less: COGS 199000 296000 249000 744000 Gross Margin 50000 208000 201000 459000 Less:S&A exp. 76000 64000 50000 190000 Income/(loss) -26000 144000 151000 269000 Less:1/3 rd share of 50% of Div.2 exp. 10500 10500 10500 31500 et Income -36500 133500 140500 237500

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