Question

A division has the following data: Sales $320,000, Variable costs $200,000, and Fixed costs $140,000. If the division were eliminated, the fixed costs would be allocated to other divisions. What the net impact on the company’s overall profit if the division is eliminated?

Answer 1

Answer:

Effect on income= $120,000 loss

Explanation:

Giving the following information:

Sales $320,000

Variable costs $200,000

Fixed costs $140,000.

None of the fixed costs are avoidable. Therefore, they shouldn't be taken into account to make the decision.

Effect on income= Sales - varaible cost

Effect on income= 320,000 - 200,000= $120,000 loss