Question

Brislin Company has four operating divisions. During the first quarter of 2020, the company reported aggregate income from operations of $211,800 and the following divisional results.

		Division
		I		II		III		IV
Sales		$253,000		$198,000		$505,000		$445,000
Cost of goods sold		203,000		195,000		295,000		253,000
Selling and administrative expenses		75,200		57,000		61,000		50,000
Income (loss) from operations		$ (25,200)		$ (54,000)		$149,000		$142,000

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

		I			II			III			IV
Cost of goods sold		74	%		91	%		80	%		74	%
Selling and administrative expenses		41			58			50			57

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		$		$

  

  

Prepare an incremental analysis concerning the possible discontinuance of Division I. (Enter negative amounts 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		$		$		$

  

  

Prepare an incremental analysis concerning the possible discontinuance of Division II. (Enter negative amounts 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		$		$		$

  

  

What course of action do you recommend for each division?

Division I		ContinuedEliminated
Division II		ContinuedEliminated

  

  

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. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

BRISLIN COMPANY
CVP Income Statement
For the Quarter Ended March 31, 2020
		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

Calculation of Contribution margin
	Division I	Division II
Cost of goods sold	$       2,03,000	$           1,95,000
Variable	$       1,50,220	$           1,77,450
Fixed	$          52,780	$              17,550
Selling and administrative expenses	$             5,200	$              57,000
Variable	$             2,132	$              33,060
Fixed	$             3,068	$              23,940
	Division I	Division II
Sales	$       2,53,000	$           1,98,000
Total variable costs	$       1,52,352	$           2,10,510
Contribution margin	$       1,00,648	$             -12,510
Total fixed costs	$          55,848	$              41,490
An incremental analysis concerning the possible discontinuance of Division I
	Continue	Eliminate	Increase / (decrease)
Contribution margin	$       1,00,648	$                       -	$                      -1,00,648
Fixed costs
Cost of goods sold	$          52,780	$              26,390	$                          -26,390
Selling and administrative expenses	$             3,068	$                1,534	$                            -1,534
Income / (Loss) from operation	$          44,800	$             -27,924	$                          -72,724
An incremental analysis concerning the possible discontinuance of Division II
	Continue	Eliminate	Increase / (decrease)
Contribution margin	$         -12,510	$                       -	$                           12,510
Fixed costs
Cost of goods sold	$          17,550	$                8,775	$                            -8,775
Selling and administrative expenses	$          23,940	$              11,970	$                          -11,970
Income / (Loss) from operation	$         -54,000	$             -20,745	$                           33,255
Course of action recommended
Based on above incremental analysis
Division I	Should be continued
Division II	Should be eliminated
	Divisions
	Division I	Division III	Division IV
Sales	$       2,53,000	$           5,05,000	$                        4,45,000
Variable costs
Cost of Goods sold	$       1,50,220	$           2,36,000	$                        1,87,220
Selling and administrative expenses	$          30,832	$              30,500	$                           28,500
Total Variable costs	$       1,81,052	$           2,66,500	$                        2,15,720
Contribution margin	$          71,948	$           2,38,500	$                        2,29,280
Fixed costs
Cost of Goods sold	$          52,780	$              59,000	$                           65,780
Selling and administrative expenses	$          44,368	$              30,500	$                           21,500
Fixed costs Division II
Cost of Goods sold   (8775/3)	$             2,925	$                2,925	$                             2,925
Selling and administrative expenses (11970/3)	$             3,990	$                3,990	$                             3,990
Total Fixed costs	$       1,04,063	$              96,415	$                           94,195
Income / (Loss) from Operation	$         -32,115	$           1,42,085	$                        1,35,085
Income / (Loss) from Operation	$       2,45,055

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