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Domino Company's management

Domino Company's management wants to determine if Division B should be eliminated. The following data are available (in thousands):

Contribution Margin Income Statement
Division A Division B Division C Total

Sales $800 $800 $1,200 $2,800
Less variable costs 560 500 720 1,780
Contribution margin $240 $300 $ 480 $1,020
Less direct fixed costs 140 340 240 720
Segment margin $100 ($ 40) $240 $ 300
Less common fixed costs 180
Operating income $120

A. Assuming all direct fixed costs of Division B are avoidable (traceable), what would be the change in operating income if Division B were eliminated?
B. Assuming one-half of the direct fixed costs of Division B are avoidable, what would be the change in operating income if Division B were eliminated?
C. If Division A's sales increase $80,000, the over all company net income will be?
D. If a promotional program at Division A costing $25,000 increases sales by $80,000, Should they go with the promotional program?

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Domino Company's management wants to determine if Division B should be eliminated. The following data are available (in thousands):

Contribution Margin Income Statement
Division A Division B Division C Total

Sales $800 $800 $1,200 $2,800
Less variable costs 560 500 720 1,780
Contribution margin $240 $300 $ 480 $1,020
Less direct fixed costs 140 340 240 720
Segment margin $100 ($ 40) $240 $ 300
Less common fixed costs 180
Operating income $120

A. Assuming all direct fixed costs of Division B are avoidable (traceable), what would be the change in operating income if Division B were eliminated?

If Division B is eliminated and that all direct fixed costs of Division B are
avoidable, there would not be sales, variable costs, and direct fixed costs included in the calculation. Common fixed costs remain the same.

Contribution Margin Income ...

Solution Summary

This solution is comprised of a detailed explanation to answer the followings: -
A. Assuming all direct fixed costs of Division B are avoidable (traceable), what would be the change in operating income if Division B were eliminated?
B. Assuming one-half of the direct fixed costs of Division B are avoidable, what would be the change in operating income if Division B were eliminated?
C. If Division A's sales increase $80,000, the over all company net income will be?
D. If a promotional program at Division A costing $25,000 increases sales by $80,000, Should they go with the promotional program?

$2.19