The Kelsh Company has two divisions--North and South. The divisions have the fol
ID: 2585316 • Letter: T
Question
The Kelsh Company has two divisions--North and South. The divisions have the following revenues and expenses:
North
South
Sales
$900,000
$800,000
Variable expenses
450,000
300,000
Traceable fixed expenses
260,000
210,000
Allocated common corporate expenses
240,000
190,000
Net operating income (loss)
($50,000)
$100,000
Management at Kelsh is pondering the elimination of the North Division. If the North Division were eliminated, its traceable fixed expenses could be avoided. The total common corporate expenses would be unaffected.
Given this data, you will advise:
North
South
Sales
$900,000
$800,000
Variable expenses
450,000
300,000
Traceable fixed expenses
260,000
210,000
Allocated common corporate expenses
240,000
190,000
Net operating income (loss)
($50,000)
$100,000
Explanation / Answer
Loss in contribution margin -450000 Traceable fixed expenses 260000 Change in profit -190000 To keep North division, as its elimination will turn the company from profitable to unprofitable. Option D is correct
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