• Ivanhoe, Inc. operates three divisions, Weak, Average, and Strong. As it turns out, the Weak division has the lowest operating income, and the president wants to close it. “Survival of the fittest, I say!” was his response when the Weak division’s manager, insisted Donald, that his division earned money for the company. Following is the most recent financial analysis for each division:

  
  

  	Weak			Average		Strong
  Sales revenue		$127,700			$452,000		$522,300
  Variable expenses		54,600			246,400		302,800
  Contribution margin		73,100			205,600		219,500
  Direct expenses		32,100			71,300		116,100
  Allocated expenses		69,800			69,800		69,800
  Operating income		($28,800)			$64,500		$33,600

  
  1)

  Prepare a revised income statement showing the segment margin for each division.

  
  

  2)

  By how much would total income change if the Weak division were dropped?

  
  

  3)

  Based on the way allocated expenses are divided among the divisions, what do you think will happen to the Average division if the company continues to prepare financial statements in this way, assuming Weak was dropped?

  
  

  If Weak is dropped, then Average will report allocated expenses of $ ____________ resulting in an (increase or decrease) of $____________.

  
  

 

Answer rating: 100% (QA)

Answer Revised Income Statement showing the segment margin for e... View the full answer