9-5A Lewis Manufacturing Company has four operating divisions. During the first quarter of 2008, the company reported aggregate income from operations of $176,000 and the following divisional results.
Divisions
One Two Three Four
Sales $250,000 $200,000 $500,000 $400,000
COGS 200,000 189,000 300,000 250,000
S & A Expense 65,000 60,000 60,000 50,000
Income (loss) -$15,000 -$49,000 $140,000 $100,000
Divisions
One Two Three Four
COGS 70% 90% 80% 75%
S&A Exp. 40% 70% 50% 60%
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 (one and two). Consensus is that one or both of the division should be discontinued.
(a.) Compute the contribution margin for divisions one and two.
(b.) Prepare an incremental analysis concerning the possible discontinuance of Division 1 and Division 2. What course of action do you recommend for each division?
(c.) Prepare a columnar condensed income statement for Lewis Manufacturing, assuming Division 2 is eliminated. Use the CVP format. Division 2’s unavoidable fixed costs are allocated equally to the continuing divisions.
(d.) Reconcile the total income from operations (176,000) with the total income from operations without Division 2.
File name: P9-5A-Lewis-manufacturing-Company1 - Template.xls File type: application/vnd.ms-excel Price: $10
SOLUTION
PREVIEW
PROBLEM
9-5A
(a)
|
Division
|
||
|
Division I
|
Division II
|
|
|
Sales
|
$250,000
|
$200,000
|
|
Variable costs COGS
|
140000
|
170100
|
|
Selling and administrative
|
26000
|
42000
|
|
Total variable expenses
|
166000
|
212100
|
