Anderson Publishing has two divisions: Book Publishing & Magazine Publishing. The Magazine division has been losing money for the last 5 years and Anderson is considering eliminating that division. Anderson?s information about the two divisions is as follows:

Only 20 percent of the fixed manufacturing costs and 60 percent of the fixed operating expenses are directly attributable to each division. The remainder are common or shared between the two divisions.

Required:

1. Present the financial information in the form of a segmented income statement (using the contribution margin approach).

2. What will be the impact on net income if the Magazine Division is eliminated?

Transcribed Image Text:

Magazine Division Book Division Total Sales Revenue $7.800,000 $3,300,000 $11.100,000 Cost of Goods sold 2,997.000 Variable manufacturing costs 2,000,000 997,000 Fixed manufacturing costs 1.077.500 1.200,000 2,277,500 $ 5,825,500 Gross Profit $4.722.500 $1.103.000 Operating Expenses Variable operating expenses 135,000 198,000 333,000 Fixed operating expenses 2,916,000 1.189,000 4.105,000 $ 1,387,500 Net income 1,67 1,500 (284,000)