compare the total income from operations with the denver division 61 000 to total in 591862

Deskins Manufacturing Company has four operating divisions. During the first quarter of 2010 the company reported total income from operations of $61,000 and the following results for the divisions.

		Division
	Denver	Miami	San Diego	Tacoma
Sales	$455,000	$730,000	$920,000	$515,000
Cost of goods sold	380,000	480,000	576,000	430,000
Selling and administrative expenses	120,000	207,000	246,000	120,000
Income (loss) from operations	$ (45,000)	$ 43,000	$ 98,000	$ (35,000)
				(SO

Analysis reveals the following percentages of variable costs in each division.

	Denver	Miami	San Diego	Tacoma
Cost of goods sold	95%	80%	90%	90%
Selling and administrative expenses	80	60	70	60

Discontinuance of any division would save 60% of the fixed costs and expenses for that division.

Top management is deeply concerned about the unprofitable divisions (Denver and

Tacoma).The consensus is that one or both of the divisions should be eliminated.

Instructions

(a) Compute the contribution margin for the two unprofitable divisions.

(b) Prepare an incremental analysis concerning the possible elimination of (1) the Denver Division and (2) the Tacoma Division. What course of action do you recommend for each division?

(c) Prepare a columnar condensed income statement using the CVP format for Deskins Manufacturing Company, assuming (1) the Denver Division is eliminated, and (2) the unavoidable fixed costs and expenses of the Denver Division are allocated 30% to Miami, 50% to San Diego, and 20% to Tacoma.

(d) Compare the total income from operations with the Denver Division ($61,000) to total income from operations without this division.