Question

Ayayai Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $207,400 and the following divisional results. Division I II III IV Sales $249,000 $200,000 $498,000 $446,000 Cost of goods sold 205,000 192,000 305,000 248,000 Selling and administrative expenses 71,600 60,000 59,000 45,000 Income (loss) from operations $ (27,600) $ (52,000) $134,000 $153,000 Analysis reveals the following percentages of variable costs in each division. I II III IV Cost of goods sold 68 % 88 % 81 % 74 % Selling and administrative expenses 40 59 47 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.

Prepare a columnar condensed income statement for Ayayai 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).) AYAYAI COMPANY CVP Income Statement For the Month Ended March 31, 2017For the Quarter Ended March 31, 2017For the Year Ended March 31, 2017 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 $ $ $ $

Answer 1

CVP Income Statemement for the Quarter Ending 31 March 2017
				Divisions
		I ($)	III ($)	IV ($)	Total ($)
Sales	A	249000	498000	446000	1193000
Variable Costs
Cost of goods sold		139400	247050	183520	569970
Selling and Administrative		28640	27730	26550	82920
Total Variable Costs	B	168040	274780	210070	652890
Contribution Margin	C (A-B)	80960	223220	235930	540110
Fixed Costs
Cost of goods sold		65600	57950	64480	188030
Selling and Administrative		42960	31270	18450	92680
Allocation of 50% of the fixed costs of Division II		15880	15880	15880	47640
{[192000*(100-88)%]+[60000*(100-59)%]}*1/3
Total Fixed Costs	D	124440	105100	98810	328350
Income / (Loss) from operations	(C-D)	(43480)	118120	137120	211760