Prepare an Incremental analysis to assist Management in making a decision.
The following information has been extracted from the books of the ABC company which has two operating divisions.
|
|
Battery Division |
Tyre Division |
|
|
|
|
|
Sales Revenue |
1,664,200 |
96,200 |
|
Cost of Goods sold |
978,520 |
76,470 |
|
|
---------------- |
---------------- |
|
Contribution Margin |
685,980 |
19,730 |
|
Operating Expenses |
527,940 |
43,600 |
|
|
-------------- |
------------- |
|
Net Income / (Deficit) |
157,740 |
(23,870) |
|
|
--------------- |
--------------- |
|
|
|
|
It has been determined that in the Tyre Division, the cost of Goods Sold is made up of $ 70,000 in variable costs and $ 6,470 in Fixed costs.
The Operating Cost is made up of $ 15,000 of Variable Costs and $ 28,600 of Fixed costs.
The company’s accountant has recommended that the Tyre division be closed as it is making a loss.
None of the Fixed costs will be saved if the Tyre Division is closed.
- Prepare an Incremental analysis to assist Management in making a decision.
- Should the company follow the accountant’s recommendation.
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