task solution

Project Description:

deskins manufacturing company has four operating divisions. during the first quarter of 2012, the company reported aggregate income from operations of $61,000 and the following results for the divisions.
division
denver miami san diego tacoma
sales $455,000 $730,000 $920,000 $515,000
cost of goods sold 380,000 480,000 576,000 430,000
selling and administrative expenses 120,000
207,000
246,000
120,000

income (loss) from operations $(45,000)
$43,000
$98,000
$(35,000)



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

denver
miami
san diego
tacoma

cost of goods sold 95 %
80 %
90 %
90 %

selling and administrative expenses 80 60 70 60


discontinuance of any division would save 60% of the fixed costs and expenses for that division.
top management is deeply concerned about the unprofitable divisions (denver and tacoma). the consensus is that one or both of the divisions should be eliminated. (for all negative amounts, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

instructions

(a) compute the contribution margin for the two unprofitable divisions.

division
denver tacoma
sales $
$

variable expenses
cost of goods sold
selling and administrative


total variable expenses


contribution margin $
$



(b) complete the incremental analysis concerning the possible discontinuance of (1)the denver division and (2) the tacoma division.

(1) continue eliminate net income
increase
denver division (decrease)
contribution margin $ $ $
fixed expenses
cost of goods sold
selling and administrative



total fixed expenses



income (loss) from operations $
$
$



(2) continue eliminate net income
increase
tacoma division (decrease)
contribution margin $
$
$

fixed expenses
cost of goods sold
selling and administrative



total fixed expenses



income (loss) from operations $
$
$


what course of action do you recommend for each?
denver division should be continuedeliminated.

tacoma division should be eliminatedcontinued .

(c) complete the columnar condensed income statement for deskins manufacturing, assuming the denver divisions is eliminated. use the cvp format. denver divisions unavoidable fixed costs are allocated 30% to miami, 50% to san diego and 20% to tacoma.

deskins manufacturing company
cvp income statement
for the quarter ended march 31, 2012
division
miami san diego tacoma total
sales $
$
$
$

variable expenses
cost of goods sold
selling and administrative




total variable expenses




contribution margin




fixed expenses
cost of goods sold
selling and administrative




total fixed expenses




income (loss) from operations $
$
$
$



(d) what is the total incremental income that is gained through elimination of the denver division? $
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