Brock University Tyndale Company and Balmer Division Accounting Questions
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The Tyndale Company is considering discontinuing Balmer Division, one of the three divisions it currently operates. The following information had been gathered for the three divisions:
|
(000 omitted) |
|||
|
Aylmer Division |
Balmer Division |
Colwell Division |
|
|
Sales |
$58,000 |
$56,000 |
$78,000 |
|
Cost of Goods Sold |
$35,000 |
$48,000 |
$59,000 |
|
Operating expenses: |
|||
|
Salaries |
7,800 |
5,900 |
11,000 |
|
Rent |
2,500 |
3,000 |
3,500 |
|
Utilities |
1,200 |
2,800 |
2,200 |
|
Total costs |
$46,500 |
$59,700 |
$75,700 |
|
Net income |
$ 11,500 |
$(3,700) |
$ 2,300 |
If Balmer Division is eliminated, the space it occupies will be divided equally among the Aylmer and Colwell divisions. Utilities are allocated on the basis of floor space occupied. 60 percent of the salaries in Balmer Division would be eliminated; the other 40 percent would be split equally between the Aylmer and Colwell divisions.
Required:
- Prepare a combined income statement for the Aylmer and Colwell divisions on the assumption that the Balmer Division is dropped. (9 marks)
- Based on your analysis, should Balmer Division be dropped? (3 marks)
- What three qualitative factors should the Tyndale Company consider in making the decision whether or not the Balmer Division should be discontinued? (3 marks)
