Closing Down Divisions

Closing down divisions. Aristide corporation has four operating divisions. During the first quarter of 2009, the company reported total income from operations of $61,000 and the following results for each division:

Closing down divisions. Aristide corporation has four operating

Further analysis of costs reveals the following percentages of variable costs in each division

Cost of goods sold 90% 80% 90%

95%

Selling, general, and administrative expenses 60% 60% 70%

80%

Closing down any division would result in savings of 60% of the fixed costs of that division.

Top management is very concerned about the unprofitable divisions (A and D) and is considering shutting them down.

1. Calculate the contribution margin for the two unprofitable divisions (A and D).

2. On the basis of financial considerations alone, should the top management of Aristide shut down Division A? Division D?

3. What other factors should the top management of Aristide consider before making adecision?

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