Rice Corporation currently operates two divisions which had operating results la

Question

Rice Corporation currently operates two divisions which had operating results last year as follows: West Division Troy Division Sales.......................................................... $600,000 $300,000 Variable costs............................................ 310,000 200,000 Contribution margin.................................. 290,000 100,000 Traceable fixed costs................................. 110,000 70,000 Allocated common corporate costs...........90,000 45,000 Net operating income (loss)....................... $ 90,000 ($ 15,000) Since the Troy Division also sustained an operating loss in the prior year, Rice's president is considering the elimination of this division. Troy Division's traceable fixed costs could be avoided if the division were eliminated. The total common corporate costs would be unaffected by the decision. If the Troy Division had been eliminated at the beginning of last year, Rice Corporation's operating income for last year would have been: A) $15,000 higher B) $30,000 lower C) $45,000 lower D) $60,000 higher

Explanation / Answer

Hi, Please find the calculations as follows: Troy Division: Contribution 100000 Less: Traceable Fixed Costs 70000 Troy Division Margin would be 100000 - 70000 = 30000 Option B is correct. Thanks, Aman

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