Sheridan Company has four operating divisions. During the first quarter of 2025, the company reported aggregate income from
operations of $181,600 and the following divisional results.
Division
I
II
III
IV
Sales
$250,000
$198,000
$499,000
$443,000
Cost of goods sold
200,000
195,000
305,000
255,000
Selling and administrative expenses
70,400
63,000
65,000
55,000
Income (loss) from operations
$ (20,400)
$ (60,000)
$129,000
$133,000
Analysis reveals the following percentages of variable costs in each division.
I
II
III
IV
Cost of goods sold
66 %
88 %
81 %
76 %
Selling and administrative expenses
38
57
52
60
Discontinuance of any division would save 50% of the fixed costs and expenses for that division.
Top management is very concerned about the unprofitable divisions (I and II). Consensus is that one or both of the divisions should be
discontinued.
