ABC company's management wants to determine if Division B should be eliminated. The following data are available: Contribution Margin Income Statement Sales in division A are $800. Division B is $1600. Division C is $1200. The total is $3600. Less Variable cost: Division A is 560. Division B is 1200. Division C is 720. The Total is 2480. Contribution margin: Division A is 240. Division B is 400. Division c is 480. The total is 1120. Less all allocated fixed costs: Division A is 140. Division B is 680. Division C 240. The total is 1060. Segment margin: Division A is 100. Division B is (280). Division c is 240. The total is 60. Less un allocated fixed costs. The total is 180. Income before taxes the total is (120). Assuming ABC company's fixed costs are unavoidable, should Division B be eliminated?
Added by Thomas C.
Step 1
- Contribution Margin for Division B = Sales - Variable Costs - Contribution Margin for Division B = $1600 - $1200 = $400 Show more…
Show all steps
Your feedback will help us improve your experience
Akash M and 71 other Principles of Accounting educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Recommended Videos
Akash M.
Cullumber Toys' management is considering eliminating product A, which has been showing a loss for several years. The company's annual income statement is as follows: A B C Total Sales $2,247,000 $1,404,000 $1,809,300 $5,460,300 Variable expenses 1,622,000 600,400 1,095,200 3,317,600 Contribution margin $625,000 $803,600 $714,100 $2,142,700 Advertising expense $517,000 $430,000 $520,000 $1,467,000 Depreciation expense 15,900 10,000 20,600 46,500 Corporate expenses 93,900 81,600 105,000 280,500 Total fixed expenses $626,800 $521,600 $645,600 $1,794,000 Operating income $(1,800) $282,000 $68,500 $348,700 Advertising expense - Specific to each product. Depreciation expense - Specific to each product; no other use available, no resale value. Corporate expenses - Allocated based on number of employees. (a) Restate the income statement in segment margin format.
Belmont Corporation has four operating divisions. The budgeted revenues and expenses for each division for 2011 follows: Further analysis of costs reveals the following percentages of variable costs in each division: Cost of goods sold $90 \% \quad 80 \% \quad 90 \% \quad 85 \%$ Selling, general, and administrative expenses $50 \% \quad 50 \% \quad 60 \% \quad 60 \%$ Closing down any division would result in savings of $40 \%$ of the fixed costs of that division. Top management is very concerned about the unprofitable divisions (A and B) and is considering closing them for the year. 1. Calculate the increase or decrease in operating income if Belmont closes division A. 2. Calculate the increase or decrease in operating income if Belmont closes division B. 3. What other factors should the top management of Belmont consider before making a decision?
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD