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X Corporation has two divisions – South and North. The divisions have the follow

ID: 2465065 • Letter: X

Question

X Corporation has two divisions – South and North. The divisions have the following revenues and expenses:

                                                                    South          North

Sales                                                       $450,000      $470,000

Variable Expenses $150,000           $225,000

Traceable Fixed Expenses $105,000         $130,000

Allocated Common Corporate Expenses $95,000            $120,000

Net Operating Income (Loss) $100,000       ($5,000)

Management at X company is pondering the elimination of the North Division. The Traceable fixed expenses of North Division include $15,000 of depreciation expense. Given these data, the elimination of North Division would result in an overall company net operating income of:

(20,000)

(35,000)

$85,000

$100,000

Explanation / Answer

Solution-

There is no clarification about avoidable cost.So need to take few assumption-

1st-Traceable Fixed Expenses could be avoided except depreciation which could not be avoided.

2nd-Allocated Common Corporate Expenses could not be avoided.

Answer would be "B"

S N Sales $ 450,000.00 Variable Exp. $ 150,000.00 Contribution $ 300,000.00 $               -   $ 300,000.00 Traceble fixed Exp. $ 105,000.00 $   15,000.00 $ 120,000.00 Allocated exp. $   95,000.00 $ 120,000.00 $ 215,000.00 Net operating income $ (35,000.00)