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Kss612 Kss612
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A month ago
Betty Hopper, controller for Diamond Manufacturing Company, has prepared the following financial information for the most recent period showing profitability of its three divisions:

​​ApplianceElectronicsFurniture
Sales$102,000$108,000$120,000
Variable expenses  86,000  92,000114,000
Contribution margin16,00016,0006,000
Fixed expenses:​​​
  Factory insurance1,0001,4002,200
  Depreciation2,0002,6003,600
  Advertising600600600
  Utilities       800    1,000     1,200
Total fixed expenses    4,400    5,600     7,600
Operating income$11,600$10,400($  1,600)

The factory insurance and advertising assigned to the furniture division are avoidable if the division is discontinued. Depreciation will remain unchanged if a division is dropped. Discontinuing furniture will reduce the utilities by $800.

Required:

a.Prepare an analysis showing whether Furniture should be eliminated.
b.If the Furniture division is eliminated, what will be effect on the overall profit for
Diamond?
Textbook 
Managerial Accounting

Managerial Accounting


Edition: 4th
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bwhurdbwhurd
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A month ago
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More solutions for this book are available here
a.Avoidable items if the furniture division is discontinued:

Contribution margin​$6,000
Less direct fixed expenses​​
  Insurance$2,200​
  Advertising600​
  Utilities   800 3,600
Segment margin​$2,400

b.Dropping Furniture will decrease profit by $2,400. As such, the company should keep
it until a better alternative is identified.
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