The division manager of Division B received the following operating income data for the past year:

 

The manager of the division is surprised that the T205 product line is not profitable. The division accountant estimates that dropping the T205 product line will decrease fixed cost of goods sold by $75,000 and decrease fixed selling and administrative expenses by $10,000.

Requirements:

a. Prepare a differential analysis to show whether Division B should drop the T205 product line.

b. What is your recommendation to the manager of Division B?

Transcribed Image Text:

DIVISION B OF BREWER, INC. Income Statement For the Year Ended December 31, 2025 Product Line Net Sales Revenue Cost of Goods Sold: Variable Fixed Total Cost of Goods Sold Gross Profit Selling and Administrative Expenses: Variable Fixed Total Selling and Administrative Expenses Operating Income (Loss) T205 $ 310,000 31,000 275,000 306,000 4,000 68,000 47,000 115,000 $ (111,000) B179 $360,000 44,000 67,000 111,000 249,000 Total $ 670,000 75,000 342,000 417,000 253,000 80,000 148,000 27,000 74,000 107,000 222,000 $ 142,000 $ 31,000 DIVISION B OF BREWER, INC. Income Statement For the Year Ended December 31, 2025 Product Line Net Sales Revenue Cost of Goods Sold: Variable Fixed Total Cost of Goods Sold Gross Profit Selling and Administrative Expenses: Variable Fixed Total Selling and Administrative Expenses Operating Income (Loss) T205 $ 310,000 31,000 275,000 306,000 4,000 68,000 47,000 115,000 $ (111,000) B179 $360,000 44,000 67,000 111,000 249,000 Total $ 670,000 75,000 342,000 417,000 253,000 80,000 148,000 27,000 74,000 107,000 222,000 $ 142,000 $ 31,000

Answer rating: 100% (QA)

Keeping or dropping a segment in a firm or a division is part of management accounting Management ac... View the full answer