Reference no: EM131790317

Consider the following information regarding Wayne Manufacturing Company and the following instructions. This is similar to Problems 20-5A and 20-5B in our textbook.

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	$368,072	$281,467	$223,730	$129,908
Cost of goods sold	216,513	180,428	194,862	108,257
Selling and administrative expenses	43,303	57,737	46,912	50,520
Income (loss) from operations	$108,257	$43,303	$(18,043)	$(28,868)	$104,649

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.)