## Fanning Company Segment AnalysisFanning Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated. Below is the income statement for Year 2:### Income Statements for Year 2| Segment | A | B | C ||----------------|----------|----------|----------|| **Sales** | $169,000 | $242,000 | $262,000 || Cost of goods sold | (123,000) | (92,000) | (89,000) || Sales commissions | (20,000) | (32,000) | (28,000) || **Contribution margin** | 26,000 | 118,000 | 145,000 || General fixed operating expenses (allocation of president's salary) | (37,000) | (35,000) | (35,000) || Advertising expense (specific to individual divisions) | (5,000) | (19,000) | 0 || **Net income (loss)** | $(16,000) | $64,000 | $110,000 |### Required Tasksa. **Prepare a schedule of relevant sales and costs for Segment A.** b. **Prepare comparative income statements for the company as a whole under two alternatives:** 1. The retention of Segment A. 2. The elimination of Segment A.### InstructionsComplete this question by entering your answers in the tabs below:#### Required A: - **Prepare a schedule of relevant sales and costs for Segment A.**#### Relevant Revenue and Cost Items for Segment A| Effect on income | $0 |This table provides a structure for determining how the retention or elimination of Segment A affects the overall profitability of Fanning Company.

Relevant cost refers to the cost that helps in decision-making. It means these costs are affected by the decision of the manager. The relevant costs are different under different alternative courses if the costs remain the same if either of the alternative courses of action is followed it means it is an irrelevant cost. Part a and b Preparing a schedule of relevant sales and costs for Segment A and comparing income statement: Part a Relevant Revenue and cost items for segment A Particular Amount ($) Sales $ 169,000.00 $ 171,000.00 Cost of goods sold $ (123,000.00) $ (128,000.00) Sales commission $ (20,000.00) $ (18,000.00) Advertising expense $ (5,000.00) $ (7,000.00) Effect on Income $ 21,000.00 $ 18,000.00 Part b BENSON COMPANY Comparative Income Statement Decision Keep Segment A Eliminate Segment A Sales $ 673,000.00 $ 504,000.00 Cost Of Goods Sold $ (304,000.00) $ (181,000.00) Sales Commissions $ (80,000.00) $ (60,000.00) Contribution Margin $ 289,000.00 $ 263,000.00 General Fixed Operating Expenses $ (107,000.00) $ (107,000.00) Advertising Expense $ (24,000.00) $ (19,000.00) Net Income $ 158,000.00 $ 137,000.00 Working (A + B + C) (B + C) A B C Keep Segment A Eliminate Segment A Sales $ 169,000.00 $ 242,000.00 $ 262,000.00 $ 673,000.00 $ 504,000.00 Cost Of Goods Sold $ (123,000.00) $ (92,000.00) $ (89,000.00) $ (304,000.00) $ (181,000.00) Sales Commission $ (20,000.00) $ (32,000.00) $ (28,000.00) $ (80,000.00) $ (60,000.00) Contribution Margin $ 26,000.00 $ 118,000.00 $ 145,000.00 $ 289,000.00 $ 263,000.00 General And Fixed Operating Expense $ (37,000.00) $ (35,000.00) $ (35,000.00) $ (107,000.00) $ (107,000.00) Advertising Expense $ (5,000.00) $ (19,000.00) $ - $ (24,000.00) $ (19,000.00) Net Income $ (16,000.00) $ 64,000.00 $ 110,000.00 $ 158,000.00 $ 137,000.00Reference:Formula:Final answer: Part a Relevant Revenue and cost items for segment A Particular Amount ($) Sales $ 169,000.00 $ 171,000.00 Cost of goods sold $ (123,000.00) $ (128,000.00) Sales commission $ (20,000.00) $ (18,000.00) Advertising expense $ (5,000.00) $ (7,000.00) Effect on Income $ 21,000.00 $ 18,000.00 Part b BENSON COMPANY Comparative Income Statement Decision Keep Segment A Eliminate Segment A Sales $ 673,000.00 $ 504,000.00 Cost Of Goods Sold $ (304,000.00) $ (181,000.00) Sales Commissions $ (80,000.00) $ (60,000.00) Contribution Margin $ 289,000.00 $ 263,000.00 General Fixed Operating Expenses $ (107,000.00) $ (107,000.00) Advertising Expense $ (24,000.00) $ (19,000.00) Net Income $ 158,000.00 $ 137,000.00

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Fanning Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated. Segment Sales Cost of goods sold Sales commissions Contribution margin General fixed operating expenses (allocation of president's salary) Advertising expense (specific to individual divisions) Net income (loss) FANNING COMPANY Income Statements for Year 2 Complete this question by entering your answers in the tabs below. Required A Required B Prepare a schedule of relevant sales and costs for Segment A. Relevant Revenue and Cost Items for Segment A Effect on income $ $ 169,000 (123,000) (20,000) 26,000 (37,000) (5,000) $ (16,000) $ 242,000 (92,000) (32,000) Required a. Prepare a schedule of relevant sales and costs for Segment A. 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. 118,000 (35,000) (19,000) $ 64,000 $ 262,000 (89,000) (28,000) 145,000 (35,000) $ 110,000

Fanning Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated. Segment Sales Cost of goods sold Sales commissions Contribution margin General fixed operating expenses (allocation of president's salary) Advertising expense (specific to individual divisions) Net income (loss) FANNING COMPANY Income Statements for Year 2 Complete this question by entering your answers in the tabs below. Required A Required B Prepare a schedule of relevant sales and costs for Segment A. Relevant Revenue and Cost Items for Segment A Effect on income $ $ 169,000 (123,000) (20,000) 26,000 (37,000) (5,000) $ (16,000) $ 242,000 (92,000) (32,000) Required a. Prepare a schedule of relevant sales and costs for Segment A. 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. 118,000 (35,000) (19,000) $ 64,000 $ 262,000 (89,000) (28,000) 145,000 (35,000) $ 110,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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