The president was told that the fixed expenses of $136,000 included $96,000 that between divisions because they were general corporate expenses. After looking a
The president was told that the fixed expenses of $136,000 included $96,000 that between divisions because they were general corporate expenses. After looking a
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter1: Introduction To Cost Management
Section: Chapter Questions
Problem 6E: Each of the following scenarios requires the use of accounting information to carry out one or more...
Related questions
Question
![The president of Eaglesway Incorporated attended a seminar about the contribution margin model and
returned to her company full of enthusiasm about it. She requested that last year's traditional model income
statement be revised, and she received the following report:
Sales
Variable expenses
Contribution margin
Fixed expenses
Net income (loss)
Total Company
$430,000
252,000
$ 178,000
136,000
$ 42,000
X
$ 170,000
109,000
$ 61,000
45,000
$ 16,000
Division
Y
$ 110,000
62,000
$ 48,000
50,000
$ (2,000)
Z
$ 150,000
81,000
$ 69,000
41,000
$ 28,000
The president was told that the fixed expenses of $136,000 included $96,000 that had been split evenly
between divisions because they were general corporate expenses. After looking at the statement, the
president exclaimed, "I knew it! Division Y is a drag on the whole company. Close it down!"
Required:
a. Evaluate the president's remark.
b. Calculate what the company's net income would be if Division Y were closed down.
c. What is the policy statement related to the allocation of fixed expenses?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F377de1f2-92b4-42a3-adb4-beb4d9bc5553%2F35c35c5b-938f-4ce8-b585-f4aa6d68ee47%2Ft3mkadi_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The president of Eaglesway Incorporated attended a seminar about the contribution margin model and
returned to her company full of enthusiasm about it. She requested that last year's traditional model income
statement be revised, and she received the following report:
Sales
Variable expenses
Contribution margin
Fixed expenses
Net income (loss)
Total Company
$430,000
252,000
$ 178,000
136,000
$ 42,000
X
$ 170,000
109,000
$ 61,000
45,000
$ 16,000
Division
Y
$ 110,000
62,000
$ 48,000
50,000
$ (2,000)
Z
$ 150,000
81,000
$ 69,000
41,000
$ 28,000
The president was told that the fixed expenses of $136,000 included $96,000 that had been split evenly
between divisions because they were general corporate expenses. After looking at the statement, the
president exclaimed, "I knew it! Division Y is a drag on the whole company. Close it down!"
Required:
a. Evaluate the president's remark.
b. Calculate what the company's net income would be if Division Y were closed down.
c. What is the policy statement related to the allocation of fixed expenses?
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Cornerstones of Cost Management (Cornerstones Ser…](https://www.bartleby.com/isbn_cover_images/9781305970663/9781305970663_smallCoverImage.gif)
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
![Cornerstones of Cost Management (Cornerstones Ser…](https://www.bartleby.com/isbn_cover_images/9781305970663/9781305970663_smallCoverImage.gif)
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning