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 : Compute the contribution margin for Division I and II
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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 :
- Compute the contribution margin for Division I and II
Thanks a bunch :)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
