guld s glass inc has three divisions commercial nonprofit and residential 544821
Elimination of Unprofitable Segment Decision
E 8. Guld’s Glass, Inc., has three divisions: Commercial, Nonprofit, and Residential. The segmented income statement for last year revealed the following:
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Guld’s Glass, Inc. Divisional Profit Summary and Decision Analysis |
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Commercial Division |
Nonprofit Division |
Residential Division |
Total Company |
|
|
Sales |
$290,000 |
$ 533,000 |
$837,000 |
$1,660,000 |
|
Less variable costs |
147,000 |
435,000 |
472,000 |
1,054,000 |
|
Contribution margin |
$143,000 |
$ 98,000 |
$365,000 |
$ 606,000 |
|
Less direct fixed costs |
124,000 |
106,000 |
139,000 |
369,000 |
|
Segment margin |
$ 19,000 |
($ 8,000) |
$226,000 |
$ 237,000 |
|
Less common fixed costs |
168,000 |
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|
Operating income |
$ 69,000 |
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1. How will Guld’s Glass be affected if the Nonprofit Division is dropped?
2. Assume the elimination of the Nonprofit Division causes the sales of the Residential Division to decrease by 10 percent. How will Guld’s Glass be affected if the Nonprofit Division is dropped?
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