Gutierrez Company has four operating division. During the first quarter of 2014, the company reported aggregate income from operation of $213,000 and the following divisional results _________________Division___________________ ___I___________II________III_________IV_____ Sales $250,000 $200,000 $500,000 $450,000 Cost of Goods Sold 200,000 192,000 300,000 250,000 Selling & administrative expenses 75,000 _60,000 _60,000 _50,000 Income (loss) from operation $(25,000) $(52,000) $140,000 $150,000 Analysis reveals the following percentages of variable costs in each divisions ___I___________II________III_________IV_____ Cost of Goods sold 75% 90% 80% 75% Selling & administrative expenses 40 70 50 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 division (I and II). Consensus is that one or both of the divisions should be discontinued. Instructions : Prepare and incremental analysis concerning the possible discontinuance of Division II
Gutierrez Company has four operating division. During the first quarter of 2014, the company reported aggregate income from operation of $213,000 and the following divisional results
_________________Division___________________
___I___________II________III_________IV_____
Sales $250,000 $200,000 $500,000 $450,000
Cost of Goods Sold 200,000 192,000 300,000 250,000
Selling & administrative expenses 75,000 _60,000 _60,000 _50,000
Income (loss) from operation $(25,000) $(52,000) $140,000 $150,000
Analysis reveals the following percentages of variable costs in each divisions
___I___________II________III_________IV_____
Cost of Goods sold 75% 90% 80% 75%
Selling & administrative expenses 40 70 50 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 division (I and II). Consensus is that one or both of the divisions should be discontinued.
Instructions :
- Prepare and incremental analysis concerning the possible discontinuance of Division II
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