Question

Prepare a columnar condensed income statement for Sheffield Company, assuming Division II is eliminated. Division II’s unavoidable fixed costs are allocated equally to the continuing divisions.

Problem 7-5 (Part Level Submission) Sheffield 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. Division II III IV Sales Cost of goods sold Selling and administrative expenses Income (loss) from operations $247,000 200,000 75,000 $ (28,000) $198,000 190,000 64,000 $ (56,000) $501,000 298,000 63,000 $140,000 $448,000 254,000 45,000 $149,000 Analysis reveals the following percentages of variable costs in each division. Cost of goods sold Selling and administrative expenses I 67 % 38 II 88% 57 III 81 % 50 IV 78 % 5 7 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.

Answer 1

Answer)

I will answer the portion that you didn't get

	Division I ($)	Division III ($)	Division IV ($)	Total ($)
Contribution margin	84500	228120	224230	536850
Fixed costs
Cost of goods sold	69800	60420	59680	189900
Selling and administrative	51086.67 (I.e [($75000×(1-0.38))+($64000×0.5×{1-0.57)×1/3)])	36086.67 (I.e (($63000×0.5)+($64000×0.5×0.43×1/3)))	23936.67 (I.e ($45000×(1-0.57))+($64000×0.5×0.43×1/3))	111110
Total fixed costs	120886.67	96506.67	83616.67	301010
Income (loss) from operation	(36386.67)	131613.33	140613.33	235840

Here the fixed cost each division is $4586.667 (i.e $64000×0.5×0.43×1/3). As no decimal correction found in the question I took upto 2 decimal places.