50.1K

Verified Solution

Link Copied!

Wayne Manufacturing Company has four operating divisions. During the first quarter of 2016, the company reported the divisional results shown below and aggregate income shown below.
Division:	North	South	East	West	Aggregate Income
Sales	$ 459,000	$ 351,000	$ 279,000	$ 162,000
Cost of goods sold	270,000	225,000	243,000	135,000
Selling and administrative expenses	54,000	72,000	58,500	63,000
Income (loss) from operations	$ 135,000	$ 54,000	$ (22,500)	$ (36,000)	$ 130,500
Analysis reveals the following percentages of variable costs in each division.
Division:	North	South	East	West
Cost of goods sold	70%	80%	75%	90%
Selling and administrative expenses	40%	50%	65%	70%
Discontinuance of any division would save 50% of the fixed costs and expenses for that division.
Top management is very concerned about the unprofitable divisions (East and West). Consensus is that one or both of the divisions should be discontinued.
Instructions - Your solutions should be clearly labeled on Solutions of this workbook.
(a) Compute the contribution margin for the East and West Divisions. (See illustration 20-17 for guidance, if needed.)
(b) Prepare an incremental analysis concerning the possible discontinuance of (1) East Division and (2) West Division. What course of action do you recommend for each division? Should either be closed? (See illustration 20-18 for guidance, if needed.)
(c) Prepare a columnar condensed income statement for Wayne Manufacturing, assuming the division(s) that should be eliminated are eliminated. Use the CVP format. Remember: Closed division's unavoidable fixed costs are allocated equally to the continuing divisions. (See Illustrations 20-16 and 20-17 for guidance, if needed.) I ALREADY HAVE IT OUTLINED JUST FILL IN THE NUMBERS 1.Contribution Margin East West Sales Variable costs COGS Selling and Adm Total Variable Expense Contribution Margin 2. Incremental Analysis - East Division East Continue Eliminate Net Income Increase Contribution Margin Fixed Costs COGS Selling and Adm. Total Fixed Expenses Income (Loss) 2. Incremental Analysis - West Division East Continue Eliminate Net Income Increase Contribution Margin Fixed Costs COGS Selling and Adm. Total Fixed Expenses Income (Loss) 3. Contribution Margin North South East Total Sales Variable Cost COGS Selling and Adm Toal Variable Expense Contribution Margin Fixed Costs COGS Selling and Adm Total Fixed Expense Income (Loss)

Answer & Explanation Solved by verified expert

See Answer