Question: Problem 16-32 (Algo) Continue or discontinue a segment? LO 16-2, 16-3 The segmented income statement for XYZ Company for the year ended December 31, 2022,
Problem 16-32 (Algo) Continue or discontinue a segment? LO 16-2, 16-3
The segmented income statement for XYZ Company for the year ended December 31, 2022, follows:
| XYZ COMPANY | ||||
| Segmented Income Statement | ||||
| For the Year Ended December 31, 2022 | ||||
| Total Company | Product A | Product B | Product C | |
|---|---|---|---|---|
| Sales | $ 616,000 | $ 305,000 | $ 125,000 | $ 186,000 |
| Variable expenses | 276,000 | 151,000 | 49,000 | 76,000 |
| Contribution margin | $ 340,000 | $ 154,000 | $ 76,000 | $ 110,000 |
| Fixed expenses | 284,000 | 164,000 | 44,000 | 76,000 |
| Operating income | $ 56,000 | $ (10,000) | $ 32,000 | $ 34,000 |
The company is concerned about the performance of product A, and you have been asked to analyze the situation and recommend to the president whether to continue or discontinue the product. During your investigation, you discover that certain fixed expenses are traceable directly to each product line as indicated here:
| Total Company | Product A | Product B | Product C | |
|---|---|---|---|---|
| Direct fixed expenses | $ 101,000 | $ 73,000 | $ 10,000 | $ 18,000 |
The remaining fixed expenses are considered to be corporatewide expenses that have been allocated to each product line based on sales revenue.
Required:
What will be the effect of the decision to discontinue product A on operating income?
Assume that product A is discontinued. Prepare a segmented income statement for the remaining products. Allocate corporatewide fixed expenses as described.
Starting with the segmented income statement, use the information you discovered during your investigation to present a more appropriately designed segmented income statement.
Assume that product A is discontinued. Prepare a segmented income statement for the remaining products. Allocate corporatewide fixed expenses as described. Note: Round intermediate calculations to 2 decimal places.
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Starting with the segmented income statement, use the information you discovered during your investigation to present a more appropriately designed segmented income statement.
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