For the first quarter of 2018, Jorge Limited has four operating segments. The total income from operations is $213,000.
The results are as follows:
SEGMENTS (000 of dollars)
One Two Three Four
Sales $ 250 $ 200.0 $ 500 $ 450.0
Variable Costs:
Cost of Goods Sold 140 172.8 240 187.5
Selling & Administrative 30 36.0 30 30.0
Contribution Margin 80 ( 8.8) 230 232.5
Fixed Costs:
Cost of Goods Sold 60 19.2 60 62.5
Selling & Administrative 45 24.0 30 20.0
Net Income $ (25) $(52.0) $ 140 $ 150.0
If a segment is discontinued, about 50% of the fixed costs and expenses for that segment would be saved.
Top management is considering the discontinuation of one or both of the unprofitable segments. Most of the managers agree that both segments should be discontinued.
INSTRUCTIONS:
1. Should Jorge Limited eliminate one or both of the unprofitable segments? Explain. Prepare analyzes to support your answer.
2. Compare the total income for all four segments with the total income if segment Two was eliminated. Determine the difference and explain the difference.