Benson Transport Company divides its operations into four divisions. A recent in

ID: 2595142 • Letter: B

Question

Benson Transport Company divides its operations into four divisions. A recent income statement for its West Division follows BENSON TRANSPORT COMPANY West Division Income Statement for the Year 2019 530,000 (380,000) (53,000) (73,000) (43,000) 133,000 $ (152,000) Revenue Salaries for drivers Fuel expenses Insurance Division-level facility-sustaining cost:s Companywide facility-sustaining costs Net loss Required a. By how much would companywide income increase or decrease if West Division is eliminated? Should West Division be eliminated? b. Assume that West Division is able to increase its revenue to $580,000 by raising its prices. Determine the amount of the increase or decrease that would occur in companywide net income. Should West Division be eliminated if revenue were $580,000? c. What is the minimum amount of revenue required to justify continuing the operation of West Division?

Explanation / Answer

Answer:

Revenue

$530,000

less: Salaries for drivers

-380,000

Fuel expense

-53,000

insurance

-73,000

Division line

-43,000

Net loss

-19,000

Note: Here we are not considering Company wide facility sustaining costs because such cost are not avoidable so it is not relevant

If division is eliminated the income would increase by $19,000

So it should be eliminated

_____________________________________________________-

=$580,000 - ($530,000+$19,000)

= $31,000

the decrease in income of $31,000

$549,000 minimum revenue required