Question

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.

(a) Your answer is correct. 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 $ $

Prepare an incremental analysis concerning the possible discontinuance of Division I. (Round answers to 0 decimal places, e.g. 1525. 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).)

		Continue		Eliminate		Net Income Increase (Decrease)
Contribution margin		$		$		$
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed expenses
Income (loss) from operations		$		$		$

Answer 1

Prepare an incremental analysis concerning the possible discontinuance of Division I. (Round answers to 0 decimal places, e.g. 1525. 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).)

		Continue		Eliminate		Net Income Increase (Decrease)
Contribution margin		$77050		$0		-77050
Fixed costs
Cost of goods sold		-51740		-25870		25870
Selling and administrative		-46810		-23405		23405
Total fixed expenses		-98550		-49275		49275
Income (loss) from operations		-21500		-49275		-27775