Khiw NV has four operating divisions. During the first quarter of 2020, the company reported aggregate income

Question:

Khiw NV has four operating divisions. During the first quarter of 2020, the company reported aggregate income from operations of €213,000 and the following divisional results.

Division Ш п IV Sales Cost of goods sold €500,000 €200,000 192,000 €450,000 250,000 50,000 €250,000 200,000 30


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 (I and II). Consensus is that one or both of the divisions should be discontinued.


Instructions

a. Compute the contribution margin for Divisions I and II.

b. Prepare an incremental analysis concerning the possible discontinuance of  (1) Division I and (2) Division II. What course of action do you recommend for each division?

c. Prepare a columnar condensed income statement for Khiw, assuming Division II is eliminated. (Use the CVP format.) Division II’s unavoidable fixed costs are allocated equally to the continuing divisions.

d. Reconcile the total income from operations (€213,000) with the total income from operations without Division II.

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Fantastic news! We've located the answer you've been seeking!

Step by Step Answer:

Related Book For  answer-question

Accounting Principles

ISBN: 978-1119419617

IFRS global edition

Authors: Paul D Kimmel, Donald E Kieso Jerry J Weygandt

Question Posted: