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 a columnar condensed income statement for Gutierrez Company, assuming Division II is eliminated. (Use CVP format). Division II’s unavoidable fixed costs are allocated equally to the continuing divisions.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 :

  1. Prepare a columnar condensed income statement for Gutierrez Company, assuming Division II is eliminated. (Use CVP format). Division II’s unavoidable fixed costs are allocated equally to the continuing divisions.

Thank you :) 

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