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 $7,880,000 $3,380,000 $11,260,000
Cost of Goods sold
Variable costs 2,021,000 1,021,000 3,042,000
Fixed costs 78,300 208,000 286,300
Gross Profit $5,780,700 $2,151,000 $7,931,700
Operating Expenses
Variable 143,000 206,000 349,000
Fixed 3,924,000 2,197,000 6,121,000
Net income $1,713,700 $(252,000) $1,461,700
The variable operating expenses are directly attributable to the division. Of the total fixed costs (manufacturing and operating), $4,008,000 are shared between the divisions, allocated $2,819,000 to the Book Division and the remaining to the Magazine Division. The remainder of the fixed costs are directly attributable to each division.
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?