Question

Physical Phitness, Inc. operates three divisions, Weak, Average, and Strong. As it turns out, the Weak division has the lowest operating income, and the president wants to close it. "Survival of the fittest, I say!" was his response when the Weak division's manager insisted that his division earned money for the company. Following is the most recent financial analysis for each division:


Required
a. Prepare a revised income statement showing the segment margin for each division; add a column for the company as a whole.
b. By how much would total income change if the Weak division were dropped?
c. Based on the way allocated expenses are divided among the divisions, what do you think will happen to the Average division if the company continues to prepare financial statements in thisway?


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  • CreatedFebruary 21, 2014
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