Anderson Publishing has two divisions: Book Publishing & Magazine Publishing. The Magazine division has been losing money for thelast 5 years and Anderson is considering eliminating that division. Anderson's information about the two divisions is as follows:MagazineDivisionTotalBook Division$ 7,810,000$ 3,310,000$11,120,e00Sales RevenueCost of Goods soldVariable costsFixed costs3,003,000278,6002,003,00077,600$ 5,729,4001,000,000201,eee2,109,e0eGross ProfitOperating ExpensesVariable$7,838,400136,0003,917,000$ 1,676,400199,0002,190,000$335,0006,107,000$ 1,396,400Fixed(280,eee)Net incomeThe variable operating expenses are directly attributable to the division. Of the total fixed costs (manufacturing and operating),$4,001,000 are shared between the divisions, allocated $2,812,000 to the Book Division and the remaining to the Magazine DivisionThe remainder of the fixed costs are directly attributable to each division.Required:1. Present the financial information in the form of a segmented income statement (using the contribution margin approach).2. What will be the impact on net income if the Magazine Division is eliminated?

Segmented Income Statement (using the contribution margin approach):Out of the total fixed cost…

Answered: Anderson Publishing has two divisions:…

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter24: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 3CMA

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Shannon, Inc., has two divisions. One produces and sells paper party supplies (napkins, paper plates, invitations); the other produces and sells cookware. A segmented income statement for the most recent quarter is given below: On seeing the quarterly statement, Madge Shannon, president of Shannon, Inc., was distressed and discussed her disappointment with Bob Ferguson, the companys vice president of finance. MADGE: The Party Supplies Division is killing us. Its not even covering its own fixed costs. Im beginning to believe that we should shut down that division. This is the seventh consecutive quarter it has failed to provide a positive segment margin. I was certain that Paula Kelly could turn it around. But this is her third quarter, and she hasnt done much better than the previous divisional manager. BOB: Well, before you get too excited about the situation, perhaps you should evaluate Paulas most recent proposals. She wants to spend 10,000 per quarter for the right to use familiar cartoon figures on a new series of invitations, plates, and napkins and at the same time increase the advertising budget by 25,000 per quarter to let the public know about them. According to her marketing people, sales should increase by 10 percent if the right advertising is doneand done quickly. In addition, Paula wants to lease some new production machinery that will increase the rate of production, lower labor costs, and result in less waste of materials. Paula claims that variable costs will be reduced by 30 percent. The cost of the lease is 95,000 per quarter. Upon hearing this news, Madge calmed considerably and, in fact, was somewhat pleased. After all, she was the one who had selected Paula and had a great deal of confidence in Paulas judgment and abilities. Required: 1. Assuming that Paulas proposals are sound, should Madge Shannon be pleased with the prospects for the Party Supplies Division? Prepare a segmented income statement for the next quarter that reflects the implementation of Paulas proposals. Assume that the Cookware Divisions sales increase by 5 percent for the next quarter and that the same cost relationships hold. 2. Suppose that everything materializes as Paula projected except for the 10 percent increase in salesno change in sales revenues takes place. Are the proposals still sound? What if the variable costs are reduced by 40 percent instead of 30 percent with no change in sales?
Bethany Company has just completed the first month of producing a new product but has not yet shipped any of this product. The product incurred variable manufacturing costs of 5,000,000, fixed manufacturing costs of 2,000,000, variable marketing costs of 1,000,000, and fixed marketing costs of 3,000,000. Under the variable costing concept, the inventory value of the new product would be: a. 5,000,000. b. 6,000,000. c. 8,000,000. d. 11,000,000.
Mario Company is considering discontinuing a product. The costs of the product consist of $20,000 fixed costs and $15,000 variable costs. The variable operating expenses related to the product total $4,000. What is the differential cost? A. $19,000 B. $15,000 C. $35,000 D. $39,000
Evans Company had total sales of 3,000,000 for fiscal 20x5. The costs of quality-related activities are given below. Required: 1. Prepare a quality cost report, classifying costs by category and expressing each category as a percentage of sales. What message does the cost report provide? 2. Prepare a bar graph and pie chart that illustrate each categorys contribution to total quality costs. Comment on the significance of the distribution. 3. What if, five years from now, quality costs are 7.5 percent of sales, with control costs being 65 percent of the total quality costs? What would your conclusion be?
Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of 1,350 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of 900 per unit. a. If a transfer price of 1,000 per unit is established and 75,000 units of materials are transferred, with no reduction in the Components Divisions current sales, how much would Ziegler Inc.s total operating income increase? b. How much would the Instrument Divisions operating income increase? c. How much would the Components Divisions operating income increase?
Garrett Company provided the following information: Common fixed cost totaled 46,000. Garrett allocates common fixed cost to Product 1 and Product 2 on the basis of sales. If Product 2 is dropped, which of the following is true? a. Sales will increase by 300,000. b. Overall operating income will increase by 2,600. c. Overall operating income will decrease by 25,000. d. Overall operating income will not change. e. Common fixed cost will decrease by 27,600.
Keep or Drop a Division Jan Shumard, president and general manager of Danbury Company, was concerned about the future of one of the companys largest divisions. The divisions most recent quarterly income statement follows: Jan is giving serious consideration to shutting down the division because this is the ninth consecutive quarter that it has shown a loss. To help him in his decision, the following additional information has been gathered: The division produces one product at a selling price of 100 to outside parties. The division sells 50% of its output to another division within the company for 83 per unit (full manufacturing cost plus 25%). The internal price is set by company policy. If the division is shut down, the user division will buy the part externally for 100 per unit. The fixed overhead assigned per unit is 20. There is no alternative use for the facilities if shut down. The facilities and equipment will be sold and the proceeds invested to produce an annuity of 100,000 per year. Of the fixed selling and administrative expenses, 30% represent allocated expenses from corporate headquarters. Variable selling expenses are 5 per unit sold for units sold externally. These expenses are avoided for internal sales. No variable administrative expenses are incurred. Required: 1. Prepare an income statement that more accurately reflects the divisions profit performance. 2. Should the president shut down the division? What will be the effect on the companys profits if the division is closed?
Cost Classification, Income Statement Gateway Construction Company, run by Jack Gateway, employs 25 to 30 people as subcontractors for laying gas, water, and sewage pipelines. Most of Gateways work comes from contracts with city and state agencies in Nebraska. The companys sales volume averages 3 million, and profits vary between 0 and 10% of sales. Sales and profits have been somewhat below average for the past 3 years due to a recession and intense competition. Because of this competition, Jack constantly reviews the prices that other companies bid for jobs. When a bid is lost, he analyzes the reasons for the differences between his bid and that of his competitors and uses this information to increase the competitiveness of future bids. Jack believes that Gateways current accounting system is deficient. Currently, all expenses are simply deducted from revenues to arrive at operating income. No effort is made to distinguish among the costs of laying pipe, obtaining contracts, and administering the company. Yet all bids are based on the costs of laying pipe. With these thoughts in mind, Jack looked more carefully at the income statement for the previous year (see below). First, he noted that jobs were priced on the basis of equipment hours, with an average price of 165 per equipment hour. However, when it came to classifying and assigning costs, he needed some help. One thing that really puzzled him was how to classify his own 114,000 salary. About half of his time was spent in bidding and securing contracts, and the other half was spent in general administrative matters. Required: 1. Classify the costs in the income statement as (1) costs of laying pipe (production costs), (2) costs of securing contracts (selling costs), or (3) costs of general administration. For production costs, identify direct materials, direct labor, and overhead costs. The company never has significant work in process (most jobs are started and completed within a day). 2. Assume that a significant driver is equipment hours. Identify the expenses that would likely be traced to jobs using this driver. Explain why you feel these costs are traceable using equipment hours. What is the cost per equipment hour for these traceable costs?
Anderson Publishing has two divisions: Book Publishing & Magazine Publishing. The Magazine division has been losing money for the last 5 years and Anderson is considering eliminating that division. Anderson’s information about the two divisions is as follows: Book Division Magazine Division Total Sales Revenue $ 7,800,000 $ 3,300,000 $ 11,100,000 Cost of Goods sold Variable costs 2,000,000 997,000 2,997,000 Fixed costs 1,077,500 1,200,000 2,277,500 Gross Profit $ 4,722,500 $ 1,103,000 $ 5,825,500 Operating Expenses Variable 135,000 198,000 333,000 Fixed 2,916,000 1,189,000 4,105,000 Net income $ 1,671,500 $ (284,000 ) $ 1,387,500 Only 20 percent of the fixed manufacturing costs and 60 percent of the fixed operating expenses are directly attribute to each division. The remainder are common or shared between the…
Anderson Publishing has two divisions: Book Publishing and Magazine Publishing. The Magazine division has been losing money for the last five years and Anderson is considering eliminating that division. Anderson’s information about the two divisions is as follows: Book Division Magazine Division Total Sales Revenue $ 8,160,000 $ 3,452,300 $ 11,612,300 Cost of Goods sold Variable manufacturing costs 2,360,000 1,176,500 3,536,500 Fixed manufacturing costs 1,113,500 1,292,700 2,406,200 Gross Profit $ 4,686,500 $ 983,100 $ 5,669,600 Operating Expenses Variable operating expenses 171,000 250,800 421,800 Fixed operating expenses 2,952,000 1,209,100 4,161,100 Net income $ 1,563,500 $ (476,800) $ 1,086,700 Only 20 percent of the fixed manufacturing costs and 60 percent of the fixed operating expenses are directly attributable to each division. The remaining are common or shared between the two divisions. Required: Compute the contribution margin and the…
A guitar manufacturer is considering eliminating its electric guitar division because its $90,790 expenses are higher than its $84,030 sales. The company reports the following expenses for this division. AvoidableExpenses UnavoidableExpenses Cost of goods sold $ 63,000 Direct expenses 9,250 $ 2,950 Indirect expenses 1,010 2,150 Service department costs 10,400 2,030 Should the division be eliminated? (Any loss amount should be indicated with minus sign.)
Rice Corporation currently operates two divisions which had operating results last year as follows: West Troy Division Division Sales..................................................................... $600,000 $300,000 Variable costs.................................................. 310,000 200,000 Contribution margin..................................... 290,000 100,000 Traceable fixed costs.................................... 110,000 70,000 Allocated common corporate costs........ 90,000 45,000 Net operating income (loss)...................... $ 90,000 ($ 15,000) Since the Troy Division also sustained an operating loss in the prior year, Rice's president is considering the elimination of this division. Troy Division's traceable fixed costs could be avoided if the division were eliminated. The total common corporate costs would be unaffected by the decision. If the…

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