Question

Brislin Company has four operating divisions. During the first quarter of 2020, the company reported aggregate income from operations of $213,000 and the following divisional results.

		Division
		I		II		III		IV
Sales		$250,000		$200,000		$500,000		$450,000
Cost of goods sold		200,000		192,000		300,000		250,000
Selling and administrative expenses		75,000		60,000		60,000		50,000
Income (loss) from operations		$ (25,000)		$ (52,000)		$140,000		$150,000

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

		I			II			III			IV
Cost of goods sold		70	%		90	%		80	%		75	%
Selling and administrative expenses		40			60			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 (I and II). Consensus is that one or both of the divisions should be discontinued.

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.

Answer 1