Reference no: EM133091108

Question - Oriole, 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 division's manager, insisted William, that his division earned money for the company. Following is the most recent financial analysis for each division:

	Weak	Average	Strong
Sales revenue	$125,200	$447,000	$524,500
Variable expenses	55,000	245,400	302,200
Contribution margin	70,200	201,600	222,300
Direct expenses	32,900	75,100	116,600
Allocated expenses	67,800	67,800	67,800
Operating income	$(30,500)	$58,700	$37,900

Required -

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

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

(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?