5. Rice Corporation currently operates two divisions which had operating results

Question

5. 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. $45,000 lower
c. $30,000 lower
d. $60,000 higher

Explanation / Answer

Before common corporate costs of 45,000 Troy made 30,000 so without them operating income for the prior year would have been $30000 lower.

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