Reference no: EM133070128
Question - Sheridan Company has four operating divisions. During the first quarter of 2022, the company reported aggregate income from operations of $211,800 and the following divisional results.
|
|
Division
|
|
I
|
II
|
III
|
IV
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|
Sales
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$253,000
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$198,000
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$505,000
|
$445,000
|
|
Cost of goods sold
|
203,000
|
195,000
|
295,000
|
253,000
|
|
Selling and administrative expenses
|
75,200
|
57,000
|
61,000
|
50,000
|
|
Income (loss) from operations
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$(25,200)
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$(54,000)
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$149,000
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$142,000
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Analysis reveals the following percentages of variable costs in each division.
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I
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II
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III
|
IV
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|
Cost of goods sold
|
74%
|
91%
|
80%
|
74%
|
|
Selling and administrative expenses
|
41
|
58
|
50
|
57
|
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 (I and II). Consensus is that one or both of the divisions should be discontinued.
Required -
(a) Compute the contribution margin for Divisions I and II.
(b1) Prepare an incremental analysis concerning the possible discontinuance of Division I.
(b2) Prepare an incremental analysis concerning the possible discontinuance of Division II.
(b3) What course of action do you recommend for each division?
(c) Prepare a columnar condensed income statement for Sheridan Company, assuming Division II is eliminated. Division II's unavoidable fixed costs are allocated equally to the continuing divisions.