(a)

Compute the contribution margin for Divisions I and II. (Enter negative amounts using either a negative sign or parenthesis)

		Division I		Division II
Contribution margin		$		$

(b1)

Prepare an incremental analysis concerning the possible discontinuance of Division I.

		Continue		Eliminate		Net Income Increase (Decrease)
Contribution margin		$		$		$
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed expenses
Income (loss) from operations		$		$		$

(b2)

Prepare an incremental analysis concerning the possible discontinuance of Division II.

		Continue		Eliminate		Net Income Increase (Decrease)
Contribution margin		$		$		$
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed expenses
Income (loss) from operations		$		$		$

(b3)

What course of action do you recommend for each division? Eliminated or continued ?

Division I
Division II

(c)

Prepare a columnar condensed income statement for Sandhill Company, assuming Division II is eliminated. Division IIs unavoidable fixed costs are allocated equally to the continuing divisions.

SANDHILL COMPANY CVP Income Statement For the Quarter Ended March 31, 2022
		Divisions
		I		III		IV		Total
Sales		$		$		$		$
Variable costs
Cost of goods sold
Selling and administrative
Total variable costs
Contribution margin
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed costs
Income (loss) from operations		$		$		$		$

Sandhill Company has four operating divisions. During the first quarter of 2022, the company reported aggregate income from operations of $ 216,600 and the following divisional results. Division 1 11 III IV Sales $ 253,000 $ 195,000 $501,000 $ 447,000 Cost of goods sold 197,000 195,000 296,000 250,000 Selling and administrative expenses 69,400 63,000 61,000 48,000 Income (loss) from operations $ (13,400) $ ( 63,000) $144,000 $ 149,000 Analysis reveals the following percentages of variable costs in each division. 1 III IV Cost of goods sold 72 % 89 % 79% 76 % Selling and administrative expenses 40 57 52 59 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