Question

Granfield company is considering eliminating its backpack division, which reported an operating loss for the recent year of $41,400. the division sales for the year were $948,600 and the variable costs were $469,000. the fixed costs of the division were $521,000. if the backpack division is dropped, 40% of the fixed costs allocated to that division could be eliminated. the impact on granfield's operating income for eliminating this business segment would be: $271,200 increase $479,600 decrease $208,400 increase $271,200 decrease $479,600 increase

Answer 1

Answer:

The impact on Granfield company operating income segment would be an increase of $208,400.

Explanation:

There would be an increase of $208,400 for Granfield company operating income segment due to the eliminated fixed cost from the payback division.

This means that there would be efficient operations of other business segment of Granfield as a result of the eliminated fixed cost from the payback division. Also, there will not be sales and variable cost accruable to the company-Granfield, in the future.

Calculation;

40% * $521,00 = $208,400