Question

Flint Company has four operating divisions. During the first quarter of 2017, the company reported aggregate...

Flint Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $204,500 and the following divisional results.
Division
I II III IV
Sales $253,000 $195,000 $504,000 $446,000
Cost of goods sold 199,000 192,000 300,000 248,000
Selling and administrative expenses 75,500 60,000 64,000 55,000
Income (loss) from operations $ (21,500) $ (57,000) $140,000 $143,000

Analysis reveals the following percentages of variable costs in each division.
I II III IV
Cost of goods sold 74 % 89 % 78 % 73 %
Selling and administrative expenses 38 57 52 60

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.

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(a)

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Compute the contribution margin for Divisions I and II. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Division I Division II
Contribution margin $

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Answer #1

(a)

Division I Division II
Sales $253,000 $195,000
Variable costs:
Less: Cost of goods sold($199,000 × 74%);($192,000 × 89%) $147,260 $170,880
Less: Selling and administrative($75,500 × 38%);($60,000 × 57%) $28,690 $34,200
Contribution margin $77,050 -$10,080
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