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keigleyhannah30
keigleyhannah30
15.03.2020 • 
Business

Monty 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 $253,000 $195,000 $501,000 $447,000
Cost of goods sold 197,000 194,000 296,000 250,000
Selling and administrative expenses 69,300 62,000 61,000 48,000
Income (loss) from operations $ (13,300) $ (61,000) $144,000 $149,000

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

I II III IV
Cost of goods sold 72 % 89 % 79 % 76 %
Selling and administrative expenses 40 57 52 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. If amount decreases net income then enter the amount 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. If amount decreases net income then enter the amount 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
Division II

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Prepare a columnar condensed income statement for Monty Company, assuming Division II is eliminated. Division II’s unavoidable fixed costs are allocated equally to the continuing divisions. (If amount decreases net income then enter the amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

MONTY COMPANY
CVP Income Statement

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 $
$
$
$

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