18. Granfield Company is considering elilminating Its backpack division, which r

Question

18. Granfield Company is considering elilminating Its backpack division, which reported an operating loss for the recent year of $41,600. The division sales for the year were $952,400 and the varlable costs were $471,000. The fixed costs of the division were $523,000. If the backpack division is dropped, 40% of the fixed costs allocated to that division could be eliminated. The impact on Granfield's operating income for eliminating this business segment would be: O $2 O $481,400 decrease O $209.200 increase O $272.200 decrease O $481.400 increase 72,200 increase

Explanation / Answer

Solution: $272,400 increase

Explanation:

Revenues lost 952,400

Variable costs avoided 471,000

Fixed cost eliminated (523,000*40%) 209200

Impact on operating income 272,200

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