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Blossom, Inc. operates three divisions, Weak, Average, and Strong. As it turns out, the Weak division has the lowest operating income, and the president wants to close it. Survival of the fittest, I say! was his response when the Weak divisions manager, insisted James, that his division earned money for the company. Following is the most recent financial analysis for each division:

		Weak			Average		Strong
Sales revenue		$125,000			$445,000		$500,000
Variable expenses		50,000			245,000		300,000
Contribution margin		75,000			200,000		200,000
Direct expenses		30,000			75,000		110,000
Allocated expenses		67,000			67,000		67,000
Operating income		$(22,000)			$58,000		$23,000

(a)

Prepare a revised income statement showing the segment margin for each division.

		Weak		Average		Strong		Total
select an income statement item Direct costsVariable expenseSegment marginSalesOperating incomeAllocated expenseContribution margin		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
select an income statement item Segment marginVariable expenseOperating incomeDirect expenseAllocated expenseSalesContribution margin		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
select a summarizing line for the first part Direct expenseOperating incomeVariable expenseContribution marginSalesSegment marginAllocated expense		enter a total amount for the first part		enter a total amount for the first part		enter a total amount for the first part		enter a total amount for the first part
select an income statement item Allocated expenseSalesOperating incomeSegment marginVariable expenseDirect expenseContribution margin		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
select a summarizing line for the second part Variable expenseAllocated expenseDirect expenseSalesSegment marginOperating incomeContribution margin		$enter a total amount for the second part		$enter a total amount for the second part		$enter a total amount for the second part		enter a total amount for the second part
select an income statement item Variable expenseAllocated expenseSalesContribution marginOperating incomeSegment marginDirect expense								enter a dollar amount
select a closing name for this statement SalesContribution marginOperating incomeSegment marginVariable expenseAllocated expenseDirect expense								$enter a total amount for this statement

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(b)

By how much would total income change if the Weak division were dropped?

Total income will select an option increasedecrease by $enter a dollar amount .

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(c)

Based on the way allocated expenses are divided among the divisions, what do you think will happen to the Average division if the company continues to prepare financial statements in this way, assuming Weak was dropped?

If Weak is dropped, then Average will report allocated expenses of $enter a dollar amount , resulting in an select an option operating incomeoperating loss of $enter a dollar amount for the division.

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