Question

In: Accounting

Wayne Manufacturing Company has four operating divisions. During the first quarter of 2016, the company reported...

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 $             459,000 $              351,000 $              279,000 $              162,000
Cost of goods sold                  270,000                   225,000                   243,000                   135,000
Selling and administrative expenses                     54,000                      72,000                      58,500                      63,000
Income (loss) from operations $             135,000 $                 54,000 $               (22,500) $               (36,000) $         130,500
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.)

I ALREADY HAVE IT OUTLINED JUST FILL IN THE NUMBERS

1.Contribution Margin
East West
Sales
Variable costs
COGS
Selling and Adm
Total Variable Expense
Contribution Margin
2. Incremental Analysis - East Division
East Continue Eliminate Net Income Increase
Contribution Margin
Fixed Costs
COGS
Selling and Adm.
Total Fixed Expenses
Income (Loss)
2. Incremental Analysis - West Division
East Continue Eliminate Net Income Increase
Contribution Margin
Fixed Costs
COGS
Selling and Adm.
Total Fixed Expenses
Income (Loss)
3. Contribution Margin
North South East Total
Sales
Variable Cost
COGS
Selling and Adm
Toal Variable Expense
Contribution Margin
Fixed Costs
COGS
Selling and Adm
Total Fixed Expense
Income (Loss)

Solutions

Expert Solution

Contribution Margin Computation

East

West

Sales

279000

162000

Variable costs

COGS

182250

121500

Selling and Admin Cost

38025

44100

Total variable costs

220275

165600

Contribution

58725

(3600)

b) Incremental Analysis

-Discontinuance of East Division

Continue

Eliminate

Net increase

Contribution margin

58725

0

(58725)

Fixed Costs

(a)COGS

60750

30375

30375

(b) Selling and Admin

20475

10237.50

10237.5

Total FC

81225

40612.5

40612.5

Income(loss)

(22500)

(40612.5)

(18112.5)

Discontinuance of west Division

Continue

Eliminate

Net increase

Contribution margin

(3600)

0

3600

Fixed Costs

(a)COGS

13500

6750

6750

(b) Selling and Admin

18900

9450

9450

Total FC

32400

16200

16200

Income(loss)

(36000)

(16200)

19800

Course of action recommended-

  1. For East Division- By Discontinuing the division the loss of the division can be reduced from $22500 to $ 18112.50 Hence the division is to be discontinued .
  2. For West Division - By discontinuing west division there is a net increase in the income of $19800. hence the division is to be discontinued.

Part C- Contribution margin

Particulars

North

South

Sales

459000

351000

Variable costs

(a) COGS

189000

180000

(b) Selling and admin Cost

21600

36000

Total VC

210600

216000

Contribution

248400

135000

Fixed costs

(a)COGS

81000+18562.5=99562.50

45000+18562.50=63562.50

(b) Selling and admin

32400+9843.75=42243.75

36000+9843.75=45843.75

Total FC

141806.25

109406.25

Income/(loss)

106593.75

25593.75

Note:- unavoidable fixed costs of east and west apportioned to North and south equally are:-

Fixed COGS- 30375+6750=37125 divided equally =18562.5,

Selling and admin costs=10237.5+9450=19687.5 divided equally=9843.75


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