Patterson Corporation has four operating divisions. During the first quarter of 2014, the company reported total income from operations of $55,000 and the following results for each division:

Further analysis of costs reveals the following percentages of variable costs in each division:

Closing down any division would result in savings of 50% of the fixed costs of that division. Top management is very concerned about the unprofitable divisions (A and D) and is considering shutting them down.
REQUIRED
1. Calculate the contribution margin for the two unprofitable divisions (A and D).
2. On the basis of financial considerations alone, should the top management of Patterson shut down Division A? Division D?

Transcribed Image Text:

vision Sales Cost of goods sold Selling and admin. expenses Operating income (loss) S550,000 490,000 140,000 $ (80,000) $780,000 520,000 230,000 30,000 $970,000 575,000 240,000 $155,000 S460,000 390,000 120,000 $ (50,000) Division Cost of goods sold Selling and admin. expenses 85% 64% 84% 64% 94% 70% 96% 78%