Question

Patterson Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated.

PATTERSON COMPANY Income Statements for the Year 2014
Segment	A			B			C
Sales	$	165,000		$	240,000		$	250,000
Cost of goods sold		(121,000	)		(92,000	)		(95,000	)
Sales commissions		(15,000	)		(22,000	)		(22,000	)
Contribution margin		29,000			126,000			133,000
General fixed oper. exp. (allocation of president’s salary)		(44,000	)		(52,000	)		(44,000	)
Advertising expense (specific to individual divisions)		(3,000	)		(10,000	)		0
Net income	$	(18,000	)	$	64,000		$	89,000

   

Required

b.	Prepare comparative income statements for the company as a whole under two alternatives: (1) the retention of Segment A and (2) the elimination of Segment A.

Patterson Company
Comparative Income Statements for the year 2014
Decision	Keep Segment A	Eliminate Segment A
Sales	?	?
Cost of good sold	?	?
Sales Commissions	?	?
Contribution Margin	?	?
General fixed Operating Expenses	?	?
Advertising Expense	?	?
Net Income	?	?

Answer 1

Solution b:

Patterson Company
Comparative Income Statements for the year 2014
Decision	Keep Segment A	Eliminate Segment A
Sales	$655,000.00	$490,000.00
Cost of good sold	$308,000.00	$187,000.00
Sales Commissions	$59,000.00	$44,000.00
Contribution Margin	$288,000.00	$259,000.00
General fixed Operating Expenses	$140,000.00	$140,000.00
Advertising Expense	$13,000.00	$10,000.00
Net Income	$135,000.00	$109,000.00