Question

Wayne Manufacturing Company has four operating divisions. During the first quarter of 2016, the company reported the divisional results shown below and aggregate income shown below.
Division:	North	South	East	West	Aggregate Income
Sales	$          454,410	$          347,490	$          276,210	$          160,380
Cost of goods sold	267,300	222,750	240,570	133,650
Selling and administrative expenses	53,460	71,280	57,915	62,370
Income (loss) from operations	$          133,650	$            53,460	$           (22,275)	$           (35,640)	$      129,195
Analysis reveals the following percentages of variable costs in each division.
Division:	North	South	East	West
Cost of goods sold	70%	80%	75%	90%
Selling and administrative expenses	40%	50%	65%	70%
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 (East and West). Consensus is that one or both of the divisions should be discontinued.
Instructions - Your solutions should be clearly labeled on Solutions of this workbook.
(a) Compute the contribution margin for the East and West Divisions. (See illustration 20-17 for guidance, if needed.)
(b) Prepare an incremental analysis concerning the possible discontinuance of (1) East Division and (2) West Division. What course of action do you recommend for each division? Should either be closed? (See illustration 20-18 for guidance, if needed.)
(c) Prepare a columnar condensed income statement for Wayne Manufacturing, assuming the division(s) that should be eliminated are eliminated. Use the CVP format. Remember: Closed division's unavoidable fixed costs are allocated equally to the continuing divisions. (See Illustrations 20-16 and 20-17 for guidance, if needed.)

Answer 1

ans 1
Division:	East	West
Sales	$276,210	$160,380
Cost of goods sold (240570*75%),(133650*90%)	180428	120285
Selling and administrative expenses (57915*65%) (62370*70%)	37645	43659
Total variable cost	218072	163944
Contribution Margin	$58,138	($3,564)
If rounded to two decimal	$58,137.75	($3,564.00)
ans 2
East Division
	Continue	Eliminate	Net Income Increase/(decrease)
Contribution Margin	$58,138		($58,138)
Fixed cost (avoidable)
Cost of goods sold	60143	30071	-30071
	(240570*25%)	(60141.5*50%)
Selling and administrative expenses	20270	10135	-10135
	(57915*35%)
Total Fixed cost	80413	40206	-40206
Income/(loss) from operations)	($22,275)	($40,206)	($17,931)
West Division
	Continue	Eliminate	Net Income Increase/(decrease)
Contribution Margin	($3,564)		$3,564
Fixed cost (avoidable)
Cost of goods sold	13365	6683	-6683
	(133650*10%)	(13365*50%)
Selling and administrative expenses	18711	9356	-9356
	(62370*30%)
Total Fixed cost	32076	16038	-16038
Income/(loss) from operations)	($35,640)	($16,038)	$19,602
West Diviion should be eliminayted
ans 3
ans 1
Division:	North	South	East	Total
Sales	454410	$347,490	$276,210	1078110
Cost of goods sold	187110	178200	180428	545738
	(267300*70%)	(222750*80%)
Selling and administrative expenses	21384	35640	37645	94669
	(53460*40%)	(71280*50%)
Total variable cost	208494	213840	218072	640406
Contribution Margin	$245,916	$133,650	$58,138	437704
Fixed cost
Cost of goods sold	82418	46778	62370	191566
Selling and administrative expenses	35195	38759	23389	97342
Total Fixed cost	117612	85536	85759	288908
Income/(loss) from operations)	$128,304	$48,114	($27,621)	$148,796
working
	North	South	East
Fixed cost
Cost of goods sold	80190	44550	60143
	(267300*30%)	(222750*20%)
Cost of goods sold WEST DIVISION
(6683*1/3)	2228	2228	2228
Total	82418	46778	62370
Selling and administrative expenses	32076	35640	20270
	(53460*60%)	(71280*50%)
Selling and administrative expenses	3119	3119	3119
(9356*1/3)
Total	35195	38759	23389