Question

Pina Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $212,300 and the following divisional results.

		Division
		I		II		III		IV
Sales		$254,000		$199,000		$501,000		$443,000
Cost of goods sold		204,000		190,000		301,000		247,000
Selling and administrative expenses		69,700		61,000		57,000		55,000
Income (loss) from operations		$ (19,700)		$ (52,000)		$143,000		$141,000

Analysis reveals the following percentages of variable costs in each division.

		I			II			III			IV
Cost of goods sold		67	%		90	%		82	%		75	%
Selling and administrative expenses		39			62			50			58

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 a columnar condensed income statement for Pina Company, assuming Division II is eliminated. Division II’s unavoidable fixed costs are allocated equally to the continuing divisions. (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

PINA COMPANY
CVP Income Statement
For the Month Ended March 31, 2017For the Quarter Ended March 31, 2017For the Year Ended March 31, 2017
		Divisions
		I		III		IV		Total
Sales		$		$		$		$
Variable costs
Cost of goods sold
Selling and administrative
Total variable costs
Contribution margin
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed costs
Income (loss) from operations		$		$		$		$

Answer 1

	Division II	Division I	Division III	Division IV
Unavoidable Fixed cost of goods sold ($190,000*10%*50%)	$9,500	3,167	3,167	3,166
Unavoidable Fixed selling and administrative expenses ($61,000*38%*50%)	11,590	3,864	3,863	3,863

PINA COMPANY CVP Income Statement For The Quarter Ended March 31, 2017
	Divisions
	I	III	IV	Total
Sales	$254,000	$501,000	$443,000	$1,198,000
Variable costs
Cost of goods sold	136,680 (204,000*67%)	246,820 (301,000*82%)	185,250 (247,000*75%)	568,750
Selling and administrative	27,183 (69,700*39%)	28,500 (57,000*50%)	31,900 (55,000*58%)	87,583
Total variable cost	163,863	275,320	217,150	656,333
Contribution margin	90,137	225,680	225,850	541,667
Fixed costs
Cost of goods sold	70,487 (204,000*33%+3,167)	57,347 (301,000*18%+3,167)	64,916 (247,000*25%+3,166)	192,750
Selling and administrative	46,381 (69,700*61%+3,864)	32,363 (57,000*50%+3,863)	26,963 (55,000*42%+3,863)	105,707
Total fixed cost	116,868	89,710	91,879	298,457
Income (loss) from operations	-$26,731	$135,970	$133,971	$243,210