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