Question

Brislin Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $218,700 and the following divisional results.

		Division
		I		II		III		IV
Sales		$250,000		$198,000		$499,000		$447,000
Cost of goods sold		195,000		194,000		298,000		250,000
Selling and administrative expenses		70,300		62,000		57,000		49,000
Income (loss) from operations		$ (15,300)		$ (58,000)		$144,000		$148,000

Analysis reveals the following percentages of variable costs in each division.

		I			II			III			IV
Cost of goods sold		74	%		92	%		78	%		73	%
Selling and administrative expenses		37			57			51			59

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 (I and II). Consensus is that one or both of the divisions should be discontinued.

Compute the contribution margin for Divisions I and II. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Division I		Division II
Contribution margin		$		$

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Prepare an incremental analysis concerning the possible discontinuance of Division I. (Round answers to 0 decimal places, e.g. 1525. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Continue		Eliminate		Net Income Increase (Decrease)
Contribution margin		$		$		$
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed expenses
Income (loss) from operations		$		$		$

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Prepare an incremental analysis concerning the possible discontinuance of Division II. (Round answers to 0 decimal places, e.g. 1525. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Continue		Eliminate		Net Income Increase (Decrease)
Contribution margin		$		$		$
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed expenses
Income (loss) from operations		$		$		$

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What course of action do you recommend for each division?

Division I		EliminatedContinued
Division II		ContinuedEliminated

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Prepare a columnar condensed income statement for Brislin Company, assuming Division II is eliminated. Division II’s unavoidable fixed costs are allocated equally to the continuing divisions. (Round answers to 0 decimal places, e.g. 1525. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

BRISLIN COMPANY
CVP Income Statement
For the Quarter Ended March 31, 2017
		Divisions
		I		III		IV		Total
Sales		$		$		$		$
Variable costs
Cost of goods sold
Selling and administrative
Total variable costs
Contribution margin
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed costs
Income (loss) from operations		$		$		$		$

Answer 1

	Division I	Division II	Division III	Division IV
Sales	250,000	198,000	499,000	447,000
COGS	195,000	194,000	298,000	250,000
Selling and Admin Expenses	70,300	62,000	57,000	49,000
Income	-15,300	-58,000	144,000	148,000
Variable cost %
COGS	74%	92%	78%	73%
Selling and Admin Expenses	37%	57%	51%	59%
Contribution Margin = Sales - Variable costs
	Division I	Division II
Sales	250,000	198,000
Less: Variable costs
COGS	144,300	178,480
Selling and Admin Expenses	26,011	35,340
Contribution Margin	79,689	-15,820
Incremental Analysis
	Keep Division I	Shut	Income Increase
Contribution Margin	79,689	0	-79,689
Fixed costs
Cost of Goods sold	50,700	25,350	25,350
Selling and Admin Expenses	44,289	22,145	22,145
Total Fixed expenses	94,989	47,495	47,495
Income(loss) from Operations	-15,300	-47,495	-32,195
	Keep Division II	Shut	Income Increase
Contribution Margin	-15,820	0	15,820
Fixed costs
Cost of Goods sold	15,520	7,760	7,760
Selling and Admin Expenses	26,660	13,330	13,330
Total Fixed expenses	42,180	21,090	21,090
Income(loss) from Operations	-58,000	-21,090	36,910
CVP Income Statement
	Div I	Div III	Div IV	Total
Sales	250,000	499,000	447,000	1,196,000
Variable costs
Cost of Goods sold	144,300	232,440	182,500	559,240
Selling and Admin Expense	26,011	29,070	28,910	83,991
Total Variable costs	170,311	261,510	211,410	643,231
Contribution Margin	79,689	237,490	235,590	552,769
Fixed costs
Cost of Goods sold	53,287	68,147	70,087	191,520
Selling and Admin Expense	48,732	32,373	24,533	105,639
Total Fixed costs	102,019	100,520	94,620	297,159
Operating Income	-22,330	136,970	140,970	255,610
Income with Div II	218,700
Eliminating	36,910
Without	255,610

Enter costs with negative sign is its does not accept positive