Tennessee Inc has three divisions Nash Memp and Knox The res

Tennessee, Inc., has three divisions: Nash, Memp, and Knox. The results of July 31, 2018 are presented below Total MempKnox Units sold Revenue Less variable costs Less direct fixed costs Less allocated fxed costs Net income 3,000 10,000 5,000 $50,000 26,000 19,000 12.000 $ (Z.000) 2,000 $40,000 16,000 12,000 4.000 $161,000 74,000 45,000 22.000 $ 20.000 $71,000 32,000 14,000 19.000 $ 8.000 All o the allocated costs will continue even a division is discontinued Tennessee allocates idrect fixed costs based on the number of units to be sold Sice the Memp division has a net loss, Tennessee feels that it should be discontinued. Tennessee foels if the division is closed, that sales at the Nash division will Increase by 12%, and that sales at the Knox division will stay the same Instructions Present the analysis in a table. (a) Prepare an analysis showing the effect of discontinuing the Memp division (b) Should Tennessee close the Memp division? Briefly indicate why or why not

Solution

Solution a:

Solution b:

Since there is a net loss of $320 if Mamp division is discontinued therefore, Memp division should not be closed.

Differential Analysis - Continue Memp division or Close Memp Division
Particulars	Continue Memp division	Discontinue Memp division	Differential effect of discontinuing- on income
Amount	Amount
Revenue	$50,000.00	$0.00	-$50,000.00
Contribution margin from increased sale of Nash division [(71000*12%)- (32000*12%)]	$0.00	$4,680.00	$4,680.00
Costs:
Varaible Cost	$26,000.00	$0.00	-$26,000.00
Direct fixed cost	$19,000.00	$0.00	-$19,000.00
Fixed Cost	$12,000.00	$12,000.00	$0.00
Income / (Loss)	-$7,000.00	-$7,320.00	-$320.00