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?

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Asked Dec 2, 2019
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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:
Magazine
Division
Total
Book Division
$ 7,810,000
$ 3,310,000
$11,120,e00
Sales Revenue
Cost of Goods sold
Variable costs
Fixed costs
3,003,000
278,600
2,003,000
77,600
$ 5,729,400
1,000,000
201,eee
2,109,e0e
Gross Profit
Operating Expenses
Variable
$
7,838,400
136,000
3,917,000
$ 1,676,400
199,000
2,190,000
$
335,000
6,107,000
$ 1,396,400
Fixed
(280,eee)
Net income
The 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 Division
The 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?
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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: Magazine Division Total Book Division $ 7,810,000 $ 3,310,000 $11,120,e00 Sales Revenue Cost of Goods sold Variable costs Fixed costs 3,003,000 278,600 2,003,000 77,600 $ 5,729,400 1,000,000 201,eee 2,109,e0e Gross Profit Operating Expenses Variable $ 7,838,400 136,000 3,917,000 $ 1,676,400 199,000 2,190,000 $ 335,000 6,107,000 $ 1,396,400 Fixed (280,eee) Net income The 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 Division The 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?

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Expert Answer

Step 1
  1. Segmented Income Statement (using the contribution margin approach):

Out of the total fixed cost ($4,001,000) allocated to both division, $2,812,000 related to book division. The rest of allocated fixed costs, i.e. $4,001,000 - $2,812,000 = $1,189,000 is apportioned to Magazine division. Due to lack of information in the sum, it is assumed that all apportioned fixed costs have been added to operating fixed costs in both the divisions. Hence, direct fixed costs (operating) for both division is as follows:

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Book Division (S3,917,000 $2,812,000) $1,105,000 Magazine Division ($2,190,000 - $1,189,000) = $1,001,000

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Step 2

Following is the Segmented I...

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Magazine Division $3,310,000 Particulars Book Division Total Sales Revenue Less: Variable Costs Cost of Goods Sold Operating Expenses Contribution Margin Less: Direct Fixed Costs Cost of Goods Sold Operating Expenses Division Line Margin Less: Common Fixed Cost Net Income/(Loss) $7,810,000 $11,120,000 $2,003,000 $136,000 $5,671,000 $1,000,000 $199,000 $2,111,000 $3,003,000 $335,000 $7,782,000 $77,600 $1,105,000 $4,488,400 $201,000 $1,001,000 $909,000 $278,000 $2,106,000 $5,398,000 $4,001,000 $1.397.000

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