Question

Ribeiro Manufacturing Company has four operating divisions. During the first quarter of 2020, the company reported aggregate income from certions of $12.700 d divisional results: o Division III TV Sales $509,500 $418,600 $313,300 $179,300 Cost of goods sold 289,700 249,000 266,600 154,800 Selling and administrative expenses 60,100 75,400 67,400 75,000 Income (loss) from operations $159,700 594,200 $(20,700) S(50,500) The analysis reveals the following percentages of variable costs in each division 1 Cost of goods sold 70% Selling and administrative expenses 38 11111 IV 89% 74 92% 48 65 70 Discontinuance of any division would save 50% of the foxed costs and expenses for that division Top management is very concerned about the unprofitable divisions (II and IV). The consensus is that the company should discontinue one or both of these Calculate the contribution margin for divisions II and IV (Enter negative amounts using either a negative sin preceding the number -15 or parentheses (451) Divisions Divisions IV Contribution margin Prepare an incremental analysis for the possible discontinuance of (1) division Illand (2) division IV. (Round answers to using either a negative sign preceding the number eg.-45 or parentheses g. (45):) decimal places, 125. Enter a negative amounts (1) Division III Division III: Keep Div. III Income Increase (Decrease) Shut Div. III Contribution margin Fixed costs

Answer 1

Answer with working notes is given below

Contribution Margin Division III $313,300 Division IV $179,300 Sales Less : Variable Cost COGS- Variable Selling and administrative expenses Contribution Margin $197,284 $43,810 $72,206 $142,416 $52,500 $15,616 COGS- Variable % COGS COGS - Variable Division 1 70% $289,700 $202,790 Division Il 89% $249,000 $221,610 Division III 74% $266,600 $197,284 Division IV 92% $154,800 $142,416 Selling and admin - Variable % Selling and administrative expenses Selling and administrative expenses- Variable 38% $60,100 $22,838 48% $75,400 $36,192 65% $67,400 $43,810 70% $75,000 $52,500 Fixed cost COGS Division 1 $86,910 $37,2621 $124,172 Division II $27,390 $39,208 $66,598 Division III $69,316 $23,590 $92,906 Division IV $12,384 $22,500 $34,884 Selling and administrative expenses Total Fixed cost | Division 1 $509,500 Division II $418,600 Division III $313,300 Division IV $179,300 Sales Less : Variable Cost COGS- Variable Selling and administrative expenses Contribution $202,790 $22,838 $283,872 $221,610 $36,192 $160,798 $197,284 $43,810 $72,206 $142,416 $52,500 -$15,616 1) Division III Contribution Margin Fixed cost Keep Div III $501,260 $318,560 $182,700 Shut Div III $429,054 $272,107) $156,947) Income Increase (Decrease) -$72,206 -$46,453 -$25,753 Totals 2) Division IV Keep Div IV $501,260 $318,560 $182,700 Contribution Margin Fixed cost Income Increase (Decrease) $15,616 -$17,442 $33,058 Shut Div IV $516,876 $301,118 $215,758 Totals Division III should be continued Division IV should be discontinued RIBEIRO MANFUACTUIRNG COMPANY CVP Income Statement Division 1 Division II $509,500 $418,600 $225,628 $257,802 $283,872 $160,798 Division III $313,300 $241,094 $72,206 Total $1,241,400 $724,524 $516,876 Sales Less : Variable Cost Contribution Margin Less: Fixed cost Net profit $129,986 $153,886 $72,412 $88,386 $98,720 $26,514 $301,118 $215,758 Income from operations with Division IV Incremental income from eliminating Division IV Income from operations without Division IV 182,700 33,058 215,758