FINCH COMPANY
Income Statements for the Year 2018
Segment A B C
Sales $165,000 $237,000 $249,000
Cost of goods sold ($122,000) ($87,000) ($87,000)
Sales commissions ($23,000) ($27,000) ($27,000)
Contribution margin $20,000 $123,000 $135,000
General fixed operating expenses (allocation of president's salary) ($37,000) ($51,000) ($27,000)
Advertising expense (specific to individual divisions) ($4,000) ($17,000) $0
Net income $21,000 ($55,000) $108,000
Required A
Prepare a schedule of relevant sales and costs for Segment A
Relevant Rev. and Cost items for Segment A
Effect on income
Sales $165,000
Cost of goods sold ($122,000)
Sales commissions ($23,000)
Contribution margin $20,000
General fixed operating expenses (allocation of president's salary) ($37,000)
Advertising expense (specific to individual divisions) ($4,000)
Net income $21,000
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.
FINCH COMPANY
Comparative Income Statements for the Year 2018
Decision Sales Cost of goods sold Sales commissions Contribution margin General fixed operating expenses Advertising expense Net Income
Keep Seg. A $402,000 ($209,000) ($50,000) $143,000 ($115,000) ($4,000) $24,000
Eliminate Seg. A $486,000 ($174,000) ($54,000) $258,000 ($78,000) $0 $126,000
