aggregate income from operations of
$213,000
and the following divisional results.
Division
I
II
III
IV
Sales
$250,000
$200,000
$500,000
$450,000
Cost of goods sold
200,000
192,000
300,000
250,000
Selling and administrative expenses
75,000
60,000
60,000
50,000
Income (loss) from operations
($25,000)
($52,000)
$140,000
$150,000
Analysis reveals the following percentages of variable costs in each division.
I
II
III
IV
Cost of goods sold
75%
90%
80%
75%
Selling and administrative expenses
40%
70%
50%
60%
Discontinuance of any division would save
50%
of the fixed costs and expenses for that division.
Instructions:
Problem P7-5A
Gutierrez Company has four operating divisions. During the first quarter of 2014, the company reported
Top management is very concerned about the unprofitable divisions (I and II). Consensus is that one or both of the divisions should be
continued.
(a)
Compute the contribution margin for Divisions I and II.
Managerial Accounting, 6
th
Edition,
by Weygandt, Kieso, and Kimmel
Primer on Using Microsoft Excel in Accounting
by Rex A Schildhouse

(b)(1)
Prepare an incremental analysis concerning the possible discontinuance of Division I.

Division II
Continue
Eliminate
Contribution margin (above)
Amount
Amount
Formula
Fixed costs
Title
Formula
Formula
Formula
Title
Formula
Formula
Formula
Title
Formula
Formula
Formula
Title
Formula
Formula
Formula

Enter text answer here.
Enter text answer here.
GUTIERREZ MANUFACTURING COMPANY
CVP Income Statement
For the Quarter Ended March 31, 2014
Divisions
I
III
IV
Total
Sales
Amount
Amount
Amount
Formula
Variable costs
Title
Formula
Formula
Formula
Formula
Title
Formula
Formula
Formula
Formula
Title
Formula
Formula
Formula
Formula
Contribution margin
Formula
Formula
Formula
Formula
Fixed costs
Title
Formula
Formula
Formula
Formula
Title
Formula
Formula
Formula
Formula
Title
Formula
Formula
Formula
Formula
Income (loss) from operations
Formula
Formula
Formula
Formula
Enter text answer here.
Enter text answer here.
$213,000
with the total income from operations without Division II.
Enter text answer here.