Answer:
The impact on Granfield's operating income = 277,700 decrease
Explanation:
If the backpack division is eliminated, the following effect will occur on the company's processes:
loss of sales from backpack division (Revenue lost)= $973,300
Variable cost to be eliminated = $482,000
Fixed cost to be eliminated = 40% of 534,000 = 40/100 × 534,000
= 0.4 × 534,000 = $213,600
Total cost eliminated ( Revenue gained) = variable cost + fixed cost
Total cost eliminated ( Revenue gained) = 482,000 + 213,600 = $695,600
Therefore, collective impact on the company is calculated as follows:
Revenue lost - Revenue gained = 973,300 - 659,600 = $277,700
Therefore, since a net revenue lost = $277,700, it means that the operating income will decrease by $277,700.
