The following information has been extracted from the books of the ABC company which has two operating divisions. Battery Division Tyre Division Sales Revenue 1,664,200 96,200 Cost of Goods sold 978,520 76,470 ---------------- ---------------- Contribution Margin 685,980 19,730 Operating Expenses 527,940 43,600 -------------- ------------- Net Income / (Deficit) 157,740 (23,870) --------------- --------------- Additionally. it has been determined that in the Tyre Division, the cost of Goods Sold is made up of $ 70,000 in variable costs and $ 6,470 in Fixed costs. Similarly, the Operating Cost is made up of $ 15,000 of Variable Costs and $ 28,600 of Fixed costs. The company’s accountant has recommended that the Tyre division be closed as it is making a loss. None of the Fixed costs will be saved if the Tyre Division is closed. Required: a) Prepare an Incremental analysis to assist Management in making a decision. b) Should the company follow the accountant’s recommendation.
The following information has been extracted from the books of the ABC company which has two operating divisions.
|
|
Battery Division |
Tyre Division |
|
|
|
|
|
Sales Revenue |
1,664,200 |
96,200 |
|
Cost of Goods sold |
978,520 |
76,470 |
|
|
---------------- |
---------------- |
|
Contribution Margin |
685,980 |
19,730 |
|
Operating Expenses |
527,940 |
43,600 |
|
|
-------------- |
------------- |
|
Net Income / (Deficit) |
157,740 |
(23,870) |
|
|
--------------- |
--------------- |
|
|
|
|
Additionally. it has been determined that in the Tyre Division, the cost of Goods Sold is made up of $ 70,000 in variable costs and $ 6,470 in Fixed costs.
Similarly, the Operating Cost is made up of $ 15,000 of Variable Costs and $ 28,600 of Fixed costs.
The company’s accountant has recommended that the Tyre division be closed as it is making a loss.
None of the Fixed costs will be saved if the Tyre Division is closed.
Required:
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