Question

The Kelsh Company has two divisions--North and South. The divisions have the following revenues and expenses: Total North South Sales $1,700,000 $900,000 $800,000 Variable expenses 750,000 450,000 300,000 Traceable fixed expenses 470,000 260,000 210,000 Allocated common corporate expenses 430,000 240,000 190,000 Net operating income (loss) 50,000 (50,000) 100,000 Management at Kelsh is pondering the elimination of North Division. If North Division were eliminated, its traceable fixed expenses could be avoided. The total common corporate expenses would be unaffected. Given these data, the elimination of North Division would result in an overall company net operating income (loss) of: A) $100,000. B) $150,000. C) $(140,000). D) $50,000.

Answer 1

Answer:

The correct answer is C that is $(140,000)

Explanation:

Elimination of the North Division will result in the overall net income or loss which is computed as:

Elimination of the North Division will result in the overall net income or loss = South Net Income (NI) - North's allocated costs

where

South Net Income is $100,000

North's allocated costs is $240,000

So,

= $100,000 - $240,000

= $(140,000)

Therefore, it will result in loss of $140,000

Note: The Net Income will be decline or decrease by $240,000 when the division was dropped.