What do you think will happen to the Average division

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Reference no: EM133078873

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

 

Weak

Average

Strong

Sales revenue

$127,800

$450,500

$520,500

Variable expenses

58,800

246,100

306,500

Contribution margin

69,000

204,400

214,000

Direct expenses

36,100

73,200

114,100

Allocated expenses

69,200

69,200

69,200

Operating income

$(36,300)

$62,000

$30,700

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?

Reference no: EM133078873

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