Explore BrainMass
Share

# 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?

#### Solution Preview

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