13. Simpson Corporation operates two divisions with the following operating resu
ID: 2516381 • Letter: 1
Question
13. Simpson Corporation operates two divisions with the following operating results from last year Western Division Eastern Division Total $620,000 $310.000 $310,000 $110,000 $90,000 $110,000 $910,000 Variable costs Contribution margin Avoidable fixed costs Allocated common fixxed costs Operating income (loss) $290,000 200,000 $90,000 50,000 $45,000 $(5,000) $510,000 $400.000 $160,000 $135,000 $105,000 Management is considering whether the Eastern Division should be discontinued since it incurred an operating loss last year. Allocated common fixed costs would continue for Simpson Corporation whether the division is discontinued or not If the Eastern Division had been discontinued at the beginning of last year, what would the total operating income for Simpson Corporation have been for the year A$5,000 B.$40,000 C$110,000 D.$65,000
Explanation / Answer
Answer:
D: 65,000
Working notes for the above answer is as under
If the eastern division is discontinued ithen also company has to incur allocated fixed costs of 45,000. Hence the total operating income will be 105000 + 5000 - 45000 = 65000
Or You can also make following calculation
Western
Eastern
Total
Sales
620,000
0
620,000
Variable costs
310,000
0
310,000
contributing margin
310,000
0
310,000
avoidable fixed costs
110,000
0
110,000
allocated fixed costs
90,000
45000
135,000
operating income (loss)
110,000
-45000
65,000
Western
Eastern
Total
Sales
620,000
0
620,000
Variable costs
310,000
0
310,000
contributing margin
310,000
0
310,000
avoidable fixed costs
110,000
0
110,000
allocated fixed costs
90,000
45000
135,000
operating income (loss)
110,000
-45000
65,000
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