ABC, Inc, Is Segmented into Three Divisions and the Company Is

question 8

Essay

ABC, Inc., is segmented into three divisions and the company is concerned about the performance of Division Y.During your analysis of Division Y, you learn that $42,000 of the fixed expenses relate to general corporate expenses and had been allocated equally between the three divisions.
$\begin{array}{lcccc}&\text { Total Company } & \text { Division } \mathrm{X} & \text { Division } \mathrm{Y} & \text { Division } \mathrm{Z}\\ \text {Sales } &\$200,000&\$80,000&\$50,000&\$70,000\\ \text {Variable expenses } & \underline{120,000}& \underline{52,000}& \underline{30,000}& \underline{38,000}\\ \text { Contribution margin } &\$80,000&\$28,000&\$20,000&\$32,000\\ \text {Fixed expenses } & \underline{60,000}& \underline{20,000}& \underline{22,000}& \underline{18,000}\\ \text { Net income (loss) } & \underline{\$20,000}& \underline{\$8,000}& \underline{\$(2,000)}& \underline{\$14,000}\\ \text { } &\\\end{array}$
(a.)Calculate what the company's net income would be if Division Y were closed down.
(b.)Revise the income statement presented above into a more useful segmented income statement.

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Definitions:

Hyperinflation

Runaway inflation; in the United States, double-digit inflation.

Monetary Policy

The process by which a central bank, like the Federal Reserve, controls the supply of money in an economy, often targeting inflation or employment levels.

Recessions

Periods of economic decline when GDP falls for two consecutive quarters, leading to a decrease in consumer spending and investment.

Government Surplus

A situation where the government's income, mainly from taxes, exceeds its expenditures within a specific timeframe, indicating fiscal health.