Question

The CPBS division (British Flavors) of Cam Bowles Soup Company is broken down into the following 4 soups; Cream of Tomato, Pea and Ham, Roasted Cauliflower & Turmeric, and Smoked Haddock Chowder. The total fixed expenses do not change, and they are allocated to each division proportionally based on sales dollars. The following is a side by side comparison of each soup's income statement Roasted Cauliflower Sales COGS Gross Margin Variable Expenses Fixed Expenses Total Expense Income from Oper. & Turmeric $4,860,000 $2,246,000 $2,614,000 $1,957,800 $1,069,200 $3,027,000 -$413,000 Cream of Tomato $9,760,000 $3,924,000 $5,836,000 $2,036,800 $2,147,200 $4,184,000 $1,653,000 Smoked Haddock Chowder $4,380,000 $1,763,000 $2,617,000 $1,343,400 $963,600 $2,307,000 $ 310,000 Pea and Ham $5,300,000 $2,138,000 $3,162,000 $1,067,000 $1,166,000 $2,233,000 $ 929,000 What is the change in income from operations if the Roasted Cauliflower & Turmeric Soup is discontinued?

Answer 1

Income Statement (After Roasted Cauliflower & Tumeric Soup is discontinued)
	Cream of Tomato	Smoked Haddok Chowder	Pea and Ham	Total
Sales	$                   9,760,000	$            4,380,000	$             5,300,000	$     19,440,000
COGS	$                   3,924,000	$            1,763,000	$             2,138,000	$        7,825,000
Gross Margin	$                   5,836,000	$            2,617,000	$             3,162,000	$     11,615,000
Variable Expenses	$                   2,036,800	$            1,343,400	$             1,067,000	$        4,447,200
Fixed Expenses*	$                   2,684,000	$            1,204,500	$             1,457,500	$        5,346,000
Total Expenses	$                   4,720,800	$            2,547,900	$             2,524,500	$        9,793,200
Income from Operations	$                   1,115,200	$                  69,100	$                637,500	$        1,821,800

*Fixed Expenses do not change irrespective of Roasted Cauliflower & Tumeric Soup is discontinued. Hence, the total fixed cost of $5,346,000 allocated to remaining divisions proportionally based on sales dollars.

Change in Income from Operations = $1,821,800-(-413000+1652000**+310000+929000) = -$656,200

Net operating income is reduced by $656,200

** Income from operations of Cream of Tomato total is wrong in the question by $1000