t K Corporation has operating divisions. The budgeted revenues and expenses for each division for 2020 10llows: (Click to view the results of each division.) Closing down any division would result in savings of 40% of the fixed costs of that division. Top management is very concerned about the unprofitable divisions (A and B) and is considering closing them for the year. Read the requirements. Requirement 1. Calculate the increase or decrease in operating income if Ainsley closes division A. Begin by calculating Division A's contribution margin. Sales Contribution margin Requirements 1. Calculate the increase or decrease in operating income if Ainsley closes division A. Division A 2. Calculate the increase or decrease in operating income if Ainsley closes division B. 3. What other factors should the top management of Ainsley consider before making a decision? Print Done - X Data table Sales Cost of goods sold Selling, general, and administrative expenses Operating income/loss B C A D $ 504,000 $948,000 $ 960,000 $ 1,240,000 440,000 930,000 765,000 925,000 96,000 202,500 144,000 210,000 $ (32,000) $ (184,500) $ 51,000 $ 105,000 Further analysis of costs reveals the following percentages of variable costs in each division: Division B 80 % 50 % Cost of goods sold Selling, general, and administrative expenses Print Division A 90 % 50 % Done C D 85% 90% 60% 60%
t K Corporation has operating divisions. The budgeted revenues and expenses for each division for 2020 10llows: (Click to view the results of each division.) Closing down any division would result in savings of 40% of the fixed costs of that division. Top management is very concerned about the unprofitable divisions (A and B) and is considering closing them for the year. Read the requirements. Requirement 1. Calculate the increase or decrease in operating income if Ainsley closes division A. Begin by calculating Division A's contribution margin. Sales Contribution margin Requirements 1. Calculate the increase or decrease in operating income if Ainsley closes division A. Division A 2. Calculate the increase or decrease in operating income if Ainsley closes division B. 3. What other factors should the top management of Ainsley consider before making a decision? Print Done - X Data table Sales Cost of goods sold Selling, general, and administrative expenses Operating income/loss B C A D $ 504,000 $948,000 $ 960,000 $ 1,240,000 440,000 930,000 765,000 925,000 96,000 202,500 144,000 210,000 $ (32,000) $ (184,500) $ 51,000 $ 105,000 Further analysis of costs reveals the following percentages of variable costs in each division: Division B 80 % 50 % Cost of goods sold Selling, general, and administrative expenses Print Division A 90 % 50 % Done C D 85% 90% 60% 60%
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
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Ainsley Corporation has four operating divisions. The budgeted revenues and expenses for each division for 2020 follows:
Closing down any division would result in savings of 40% of the fixed costs of that division. Top management is very concerned about the unprofitable divisions (A and B) and is considering closing them for
the year.
(Click to view the results of each division.)
Read the requirements.
Requirement 1. Calculate the increase or decrease in operating income if Ainsley closes division A.
Begin by calculating Division A's contribution margin.
Sales
Contribution margin
Requirements
1. Calculate the increase or decrease in operating income if Ainsley closes
division A.
Division A
2. Calculate the increase or decrease in operating income if Ainsley closes
division B.
3. What other factors should the top management of Ainsley consider before
making a decision?
Print
Done
X
Data table
Sales
Cost of goods sold
Selling, general, and administrative expenses
Operating income/loss
A
504,000 $
440,000
96,000
$ (32,000) $ (184,500) $
$
Print
Cost of goods sold
Selling, general, and administrative expenses
Division
Further analysis of costs reveals the following percentages of variable costs in each division:
Division
A
90 %
50 %
Done
B
948,000 $
930,000 765,000
202,500 144,000
51,000 $
с
D
960,000 $1,240,000
925,000
210,000
105,000
B
80 %
50 %
C
90 %
60%
D
85 %
60 %
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