Question

Tomik Corp. has four operating divisions. The reported revenues and expenses for the most recent year...

Tomik Corp. has four operating divisions. The reported revenues and expenses for the most recent year are as follows:

Division:                    East                South                Midwest                  California

Sales                        $504,000         $948,000          $960,000                $1,240,000

Variable costs          440,000          930,000            765,000                    925,000

Fixed costs*               96,000          202,000            144,000                    210,000

Op. Inc. (loss)         $(32,000)      $(184,000)           $ 51,000                 $ 105,000

*Fixed costs for all divisions are 20% attributable and 80% common fixed costs

15. What is the contribution margin for the California division?

16. What are the attributable fixed costs for the Midwest division?

17. Management is considering closing either the East or South divisions. Which division do you recommend that management close and why?

Business   Accounting   
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Answer #1

East

South

Midwest

California

total

sales

504000

948000

960000

1240000

3652000

less v. cost

440000

930000

765000

925000

3060000

contribution

64000

18000

195000

315000

592000

fixed cost 20% - allocated fixed cost - 20%

19200

40400

28800

42000

EBIT

44800

-22400

166200

273000

15-

315000

16-

28800

17-

South division should be closed as its EBIT in segmented income statement is negative
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