Division

(a)
Sales
Variable costs
Cost of goods sold
Selling and administrative
Total variable expenses
Contribution margin

Denver
$455,000

Tacoma
$515,000

361,000
96,000
457,000
($2,000)

387,000
72,000
459,000
$56,000

(b)

(1)

Denver Division
Contribution margin
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed expenses
Income/(loss) from operations

Net
Income
Increase
Continue Eliminate (Decrease)
($2,000)
$0
$2,000
19,000
24,000
43,000
($45,000)

7,600
9,600
17,200
($17,200)

(11,400)
(14,400)
(25,800)
$27,800

Denver should be discontinued since, net income increases by

$27,800 on doing so

(2)

Tacoma Division
Contribution margin
Fixed costs
Cost of goods sold
Selling and administrative
Total fixed expenses
Income/(loss) from operations

Net
Income
Increase
Continue Eliminate (Decrease)
$56,000
$0
($56,000)
43,000
48,000
91,000
($35,000)

17,200
19,200
36,400
($36,400)

Tacoma should be continued since, net income losses decreases by

$1,400
What course of action do you recommend for each?
Denver division should be
discontinued
Tacoma division should be
continued

(25,800)
(28,800)
(54,600)
($1,400)

( c)

DESKINS MANUFACTURING COMPANY

CVP Income Statement
For the Quarter Ended March 31, 2012

Sales
Variable expenses
Cost of goods sold
Selling and administrative
Total variable expenses
Contribution margin
Fixed expenses
Cost of goods sold
Selling and administrative
Total fixed expenses
Income (loss) from operations
Denver's fixed COGS
Denver's fixed Selling and adm

Miami
$730,000

San
Diego
$920,000

384,000
124,200
508,200
221,800

518,400
172,200
690,600
229,400

387,000
72,000
459,000
56,000

1,289,400
368,400
1,657,800
507,200

101,160
88,560
189,720
$32,080

66,200
83,400
149,600
$79,800

46,440
51,840
98,280
($42,280)

213,800
223,800
437,600
$69,600

5,160
5,760

8,600
9,600

(d) Incremental income gained through the elimination of denver is

Tacoma
Total
$515,000 $2,165,000

3,440
3,840

17,200
19,200
$8,600