Reference no: EM13823882
Snickers Company operates two divisions, the Fruit Preserves Division and the Snack Foods Division. The Fruit Preserves Division manufactures and sells jelly and jams to supermarkets. The Snack Foods Division sells its products to theme parks. The company is considering disposing of the Snack Foods Division since it has been consistently unprofitable for a number of years. The income statements for the two divisions for the year ended December 31, 2015 are presented below:
Fruit Preserves Snack Foods
Division Division Total
Sales revenue $1,663,240 $100,350 $1,763,590
Cost of goods sold 978,030 76,440 1,054,470
Gross profit 685,210 23,910 709,120
Selling & admin expenses 526,990 49,750 576,740
Net income $ 158,220 $(25,840) $ 132,380
In the Snack Foods Division, $60,200 of the cost of goods sold are variable costs and $25,500 of selling and administrative expenses are variable costs. The management of the company feels that none of the fixed costs will be eliminated if it discontinues operation of the Snack Foods Division.
Instructions
(a) Determine whether the company should discontinue operating the Snack Foods Division. Prepare a schedule which supports your decision.
(b) If the company had discontinued the division for 2015, compute what net income would have been.
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