Exercise 23-8 Segment elimination P4 Marin Company makes several products, including canoes. The company reports a loss from its canoe segment (see below). All its variable costs are avoidable, and $300,000 of its fixed costs are avoidable. (a) Compute the income increase or decrease from eliminating this segment. (b) Should the segment be eliminated? Segment Income (Loss) Sales Variable costs Contribution margin Fixed costs Income (loss) $980,000 700,000 280,000 340,000 $ (60,000) Page 923

Exercise 23-8 Segment elimination P4 Marin Company makes several products, including canoes. The company reports a loss from its canoe segment (see below). All its variable costs are avoidable, and $300,000 of its fixed costs are avoidable. (a) Compute the income increase or decrease from eliminating this segment. (b) Should the segment be eliminated? Segment Income (Loss) Sales Variable costs Contribution margin Fixed costs Income (loss) $980,000 700,000 280,000 340,000 $ (60,000) Page 923

Financial & Managerial Accounting

14th Edition

ISBN:9781337119207

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter20: Variable Costing For Management Analysis

Section: Chapter Questions

Problem 20.17EX: Contribution margin analysis sales Select Audio Inc. sells electronic equipment. Management decided...

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Segment variable costing income statement and effect on income of change in operations Valdespin Company manufactures three sizes of camping tentssmall (S), medium (M), and large (L). The income statement has consistently indicated a net loss for the M size, and management is considering three proposals: (1) continue Size M, (2) discontinue Size M and reduce total output accordingly, or (3) discontinue Size M and conduct an advertising campaign to expand the sales of Size S so that the entire plant capacity can continue to be used. If Proposal 2 is selected and Size M is discontinued and production curtailed, the annual fixed production costs and fixed operating expenses could be reduced by 46,080 and 532,240. respectively. If Proposal 3 is selected, it is anticipated that an additional annual expenditure of 34,560 for the rental of additional warehouse space would yield an additional 130% in Size S sales volume. It is also assumed that the increased production of Size S would utilize the plant facilities released by the discontinuance of Size M. The sales and costs have been relatively stable over the past few years, and they are expected to remain so for the foreseeable future. The income statement for the past year ended June 30, 20Y9, is as follows: Instructions 1. Prepare an income statement for the past year in the variable costing: format. Use the following headings: Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin, as reported in the Total column, to determine income from operations. 2. Based on the income statement prepared in (1) and the other data presented, determine the amount by which total annual income from operations would be reduced below its present level if Proposal 2 is accepted. 3. Prepare an income statement in the variable costing format, indicating the projected annual income from operations if Proposal 3 is accepted. Use the following headings: Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin as reported in the Total column. For purposes of this problem, the expenditure of 34,560 for the rental of additional warehouse space can be added to the fixed operating expenses. 4. By how much would total annual income increase above its present level if Proposal 3 is accepted? Explain.
Variable costing income statement and effect on income of change in operations Kimbrell Inc. manufacture three sizes of utility tablessmall (S), medium (M), and large (L). The income statement has consistently indicated a net loss for the M size, and management is considering three proposals: (1) continue Size M, (2) discontinue Size M and reduce total output accordingly, or (3) discontinue Size M and conduct an advertising campaign to expand the sales of Size S so that the entire plant capacity can continue to be used. If Proposal 2 is selected and Size M is discontinued and production curtailed, the annual fixed production costs and fixed operating expenses could be reduced by 142,500 and 28,350. respectively. If Proposal 3 is selected, it is anticipated that an additional annual expenditure of 85,050 for the salary of an assistant brand manager (classified as a fixed operating expense) would yield an additional 130% in Size S sales volume. It is also assumed that the increased production of Size S would utilize the plant facilities released by the discontinuance of Size M. The sales and costs have been relatively stable over the past few years, and they are expected to remain so for the foreseeable future. The income statement for the past year ended December 31, 20Y8, is as follows: Instructions 1. Prepare an income statement for the past year in the variable costing format. Use the following headings: Size S M L Total Data for each style should be reported through contribution margin. The fixed costs should lie deducted from the total contribution margin, as reported in the Total" column, to determine income from operations. 2. Based on the income statement prepared in (1) and the other data presented above, determine the amount by which total annual income from operations would be reduced below its present level if Proposal 2 is accepted. 3. Prepare an income statement in the variable costing format, indicating the projected annual income from operations if Proposal 3 is accepted. Use the following headings: Size S L Total Data for each style should be reported through contribution margin. The fixed costs should lie deducted from the total contribution margin as reported in the "Total" column. For purposes of this problem, the additional expenditure of 85,050 for the assistant brand manager's salary can be added to the fixed operating expenses. 4. By how much would total annual income increase above its present level if Proposal 3 is accepted? Explain.
Discontinue a segment Product TS-20 has revenue of 102,000, variable cost of goods sold of 52,500, variable selling expenses of 21,500, and fixed Costs of 35,000, creating a loss from operations of 7,000. Prepare a differential analysis as of September 12 to determine if Product TS-20 should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision.
Contribution margin analysis sales Select Audio Inc. sells electronic equipment. Management decided curly in the year to reduce the price of the speakers in order to increase sales volume. As a result, for the year ended December 31, the .sales increased by 31,875 from the planned level of 1,048,125. The following information is available from the accounting records for the year ended December 31. A. Prepare an analysis of the sales quantity and unit price factors. B. Did the price decrease generate sufficient volume to result in a net increase in contribution margin if the actual variable cost per unit was 10, as planned?