Question

In: Accounting

CDM Corporation has two segments. The company sells boats and also rents boats. Information for the...

CDM Corporation has two segments. The company sells boats and also rents boats. Information for the two segments is given below. Currently, the total fixed costs are being split equally between the two divisions.

	Boat Sales	Boat Rentals	Total
Sales	206,000	300,000	506,000
Variable Costs	100,000	80,000	160,000
Operating Income	-24,000	120,000	96,000

The manager of the boat rental division wants a bonus and suggests discontinuing the boat sales division because of its poor showing. After further analysis, it is revealed that $100,000 of the fixed costs relates exclusively to depreciation of the rental boats and the remaining fixed costs are common costs supporting both segments. Prepare a more accurate segment income statement separating the traceable fixed costs.


Common Fixed CostsContribution MarginFixed CostsGross MarginSegment MarginSalesVariable CostsTraceable Fixed Costs
Common Fixed CostsContribution MarginFixed CostsGross MarginSegment MarginSalesVariable CostsTraceable Fixed Costs
Common Fixed CostsContribution MarginFixed CostsGross MarginSegment MarginSalesVariable CostsTraceable Fixed Costs
Common Fixed CostsContribution MarginFixed CostsGross MarginSegment MarginSalesVariable CostsTraceable Fixed Costs
Operating Income

Should the boat Sales division be discontinued? YesNo

How much would total operating income be if the boat sales division was discontinued? $

Expert Solution

Fixed Cost for Boat sales as per above data= 206000-100000+24000=130000

Fixed Cost for rental Boat as per above data= 300000-80000-120000=100000

Total Fixed Cost= 130000+100000=230000 out of which 100000 is only for rental boat and balance of 130000 to be common for both the business i.e. 65000 for each business

Hence:- Operating income statement would be

Particulars

Boat Sales

Boat Rentals

Total

Sales

206000

300000

506000

Variable Cost

100000

80000

180000

Fixed Cost

65000

165000

230000

Operating Income

41000

55000

96000

Hence Boat Sales division should not be discontinued as it is a profitable business.

Further if boat sales division is discontinued Operating Income statement is:-

Particulars	Boat Rentals	Total

Sales	300000	300000
Variable Cost	80000	80000
Fixed Cost	230000	230000
Operating Income	-10000	-10000
Hence if sales division discontinued, then rental division would go into loss.

ekkarill92 answered 2 years ago

Walsh Corporation has two major business segments: Consumer and Commercial.

Walsh Corporation has two major business segments: Consumer and Commercial. Data for the segments and for the company for March appear below:Sales revenues, Consumer$680,000Sales revenues, Commercial$280,000Variable expenses, Consumer$394,000Variable expenses, Commercial$143,000Traceable fixed expenses, Consumer$102,000Traceable fixed expenses, Commercial$45,000In addition, common fixed expenses totaled $210,000 and were allocated as follows: $122,000 to the Consumer business segment and $88,000 to the Commercial business segment.A properly constructed segmented income statement in a contribution format would show that the segment margin of the Consumer business segment...

C2. Blanton Corporation is comprised of five operating segments. Information about each of these segments is...

C2. Blanton Corporation is comprised of five operating segments. Information about each of these segments is as follows (in thousands): Linens Kitchen Grocery Furniture Stationery Sales to outsiders $ 47 $ 253 $ 22 $ 61 $ 14 Intersegment transfers 2 13 7 15 12 Interest revenue - outsiders 1 - 2 4 - Interest revenue - intersegment - 3 - - 11 Operating expenses - outsiders 58 207 20 51 13 Operating expenses - intersegment 1 10 3 8...

Camren Corporation has two major business segments-Apparel and Accessories. Data concerning those segments for December appear...

Camren Corporation has two major business segments-Apparel and Accessories. Data concerning those segments for December appear below: Sales revenues, Apparel $ 717,000 Variable expenses, Apparel $ 397,000 Traceable fixed expenses, Apparel $ 125,000 Sales revenues, Accessories $ 771,000 Variable expenses, Accessories $ 510,000 Traceable fixed expenses, Accessories $ 176,000 Common fixed expenses totaled $181,000 and were allocated as follows: $74,000 to the Apparel business segment and $107,000 to the Accessories business segment. Required: Prepare a segmented income statement in the...

Chris is the president and sole shareholder of MSI Corporation. He also lends money and rents...

Chris is the president and sole shareholder of MSI Corporation. He also lends money and rents a building to the corporation. Discuss how these business relationships between Chris and MSI Corporation can help avoid double taxation. What limitations are there on the use of such relationships? In your analysis, include: An introduction Discussion Conclusion.

Handout Question 1: Stokes Bay Fishing Corporation manufactures and sells fishing boats. The CEO of the...

Handout Question 1: Stokes Bay Fishing Corporation manufactures and sells fishing boats. The CEO of the company, Keith Jones, has been fishing since he was a young boy and is very excited to be the majority owner of a successful fishing-related business. All of the company’s sales come from two products: the Fish Hauler and the Trolling Deluxe. Both are 16-foot aluminum boats. The Fish Hauler is a basic boat built with the minimum required components necessary for a successful...

Scott has operated a marina on Lake Huron for several years. The marina sells boats and...

Scott has operated a marina on Lake Huron for several years. The marina sells boats and provides a dock space and winter boat storage to its customers. On August 1, 2014 Craig purchased the marina from Scott. As part of the sale, Craig took over all the existing contracts Scott had for the storage and docking of boats. Nick had a contract with Scott to store his boat at the marina over the winter and to rent dock space as...

1.) Maurice Corporation has two major business segments; Philippe and Chip. In April, the Philippe business...

1.) Maurice Corporation has two major business segments; Philippe and Chip. In April, the Philippe business segment had sales revenues of $500,000, variable expenses of $280,000, and traceable fixed expenses of $80,000. During the same month, the Chip business segment had sales revenues of $970,000, variable expenses of $514,000, and traceable fixed expenses of $184,000. The common fixed expenses totaled $280,000 and were allocated as follows: $112,000 to the Philippe business segment and $168,000 to the Chip business segment. A...

McHale Company does business in two customer segments, Retail and Wholesale. The following annual revenue information...

McHale Company does business in two customer segments, Retail and Wholesale. The following annual revenue information was determined from the accounting system's invoice information: 20Y5 20Y4 Retail $281,820 $268,400 Wholesale 147,576 171,600 Total revenue $429,396 $440,000 Prepare a horizontal analysis of the segments. Round percentages to one decimal place. Enter negative values as negative numbers. McHale Company Horizontal Analysis For the Years 20Y4 and 20Y5 20Y5 20Y4 Difference - Amount Difference - Percent Retail $281,820 $268,400 $ % Wholesale 147,576...

Nucor Corporation manufactures and sells steel and steel products. It operates in three segments: Steel Mills,...

Nucor Corporation manufactures and sells steel and steel products. It operates in three segments: Steel Mills, Steel Products, and Raw Materials. The Steel Mills segment produces hot-rolled, cold-rolled, and galvanized sheet steel products; plate steel products; wide-flange beams, beam blanks, and H-piling and sheet piling products; bar steel products, such as blooms, billets, concrete reinforcing and merchant bars, and special bar quality products. It also engages in the steel trading and rebar distribution businesses. Nucor has a capital budget of...

CEG Ski Corporation has two main business segments: Ski boot production and wakeboard production. The wakeboard...

CEG Ski Corporation has two main business segments: Ski boot production and wakeboard production. The wakeboard production division is currently considering purchasing the ski boots from an outside supplier for $45 per pair; however, they would like to see if they can negotiate a lower price with ski boot production line. The ski boot division sells boots at a price of $65 per pair and incurs variable costs of $30 per pair. Their total factory capacity is 5,000 pairs. If...