Anderson Publishing has two divisions: Book Publishing & Magazine Publishing. The Magazine division has been losing money for the last 5 years and Anderson is considering eliminating that division. Anderson’s information about the two divisions is as follows: Book Division Magazine Division Total
Sales Revenue $7,900,000 $3,342,300 $11,242,300
Cost of Goods sold
Variable costs 2,100,000 1,046,900 3,146,900
Fixed costs 1,087,500 1,225,800 2,313,300
Gross Profit $4,712,500 $1,069,600 $ 5,782,100
Operating Expenses
Variable 145,000 212,700 357,700
Fixed 2,926,000 1,194,600 4,120,600
Net income $1,641,500 $ (337,700 ) $1,303,800
Only 20 percent of the fixed manufacturing costs and 60 percent of the fixed operating expenses are directly attribute to each division. The remainder are common or shared between the two divisions.
Required:
1. Present the financial information in the form of a segmented income statement (using the contribution margin approach).
2. What will be the impact on net income if the Magazine Division is eliminated?