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    XYZ COMPANY P16-24 Continue or discontinue a segment?

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    P16-24 Continue or discontinue a segment? [LO 2, 3]. Please see attachment for questions.

    P16-24 Continue or discontinue a segment? [LO 2, 3]

    The segmented income statement for XYZ Company for the year ended December 31, 2010, follows:

    XYZ COMPANY
    Segmented Income Statement
    For the Year Ended December 31, 2010
    Total
    Company Product A Product B Product C
    Sales $ 1,200,000 $ 600,000 $ 240,000 $ 360,000
    Variable expenses 552,000 300,000 108,000 144,000
    ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________
    Contribution margin $ 648,000 $ 300,000 $ 132,000 $ 216,000
    Fixed expenses $ 564,000 328,000 92,000 144,000
    ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________
    Operating income $ 84,000 $ (28,000 ) $ 40,000 $ 72,000
    ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________
    ________________________________________

    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 $204,000 $148,000 $20,000 $36,000
    ________________________________________

    The remaining fixed expenses are considered to be corporatewide expenses that have been allocated to each product line based on sales revenue.

    Required:
    (a) What will be the effect of the decision to discontinue product A on operating income? (Input the amount as positive value. Omit the "$" sign in your response.)

    Operating income will by $ for the XYZ Company if it discontinues
    Product A.

    (b) Assume that product A is discontinued. Prepare a segmented income statement for the remaining products. Allocate corporatewide fixed expenses as described. (Input all amounts as positive values except operating losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

    XYZ COMPANY
    Segmented Income Statement
    For the Year Ended December 31, 2010
    Total
    Company Product B Product C
    Sales $
    $
    $

    Variable expenses

    ________________________________________ ________________________________________ ________________________________________
    Contribution margin $
    $
    $

    Direct fixed expenses

    Common fixed expenses

    ________________________________________ ________________________________________ ________________________________________
    Operating income/loss $
    $
    $

    ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________
    ________________________________________

    (c) Starting with the segmented income statement, use the information you discovered during your investigation to present a more appropriately designed segmented income statement. (Input the amount as positive value. Omit the "$" sign in your response.)

    XYZ COMPANY
    Segmented Income Statement
    For the Year Ended December 31, 2010
    Total
    Company Product A Product B Product C
    Sales $
    $
    $
    $

    Variable expenses

    ________________________________________ ________________________________________ ________________________________________ ________________________________________
    Contribution margin $
    $
    $
    $

    Direct fixed expenses

    ________________________________________ ________________________________________ ________________________________________ ________________________________________
    Segment margin $
    $
    $
    $

    ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________
    Common fixed expenses

    ________________________________________

    $

    ________________________________________________________________________________
    ________________________________________

    © BrainMass Inc. brainmass.com October 10, 2019, 4:37 am ad1c9bdddf
    https://brainmass.com/business/accounting/xyz-company-p16-24-continue-or-discontinue-a-segment-469402

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    Solution Summary

    Your tutorial to complete this is in Excel (attached). The key is to separate avoidable fixed and common fixed costs.

    $2.19