Reference no: EM133102715

Question - Cullumber, 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 Gary, that his division earned money for the company. Following is the most recent financial analysis for each division:

	Weak	Average	Strong
Sales revenue	$125,700	$457,000	$549,600
Variable expenses	59,000	247,400	304,800
Contribution margin	66,700	209,600	244,800
Direct expenses	30,500	73,500	117,200
Allocated expenses	71,800	71,800	71,800
Operating Income	$(35,600)	$64,300	$55,800

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?