Question

Assume that Sara is partly correct in her assessment of the report. Upon further​ investigation, it is determined that 10 % of the order processing costs and 20 % of the delivery costs would not be avoidable if CRS were to drop Donnelly's. Would CRS benefit from dropping Donnelly's​? Show your calculations.

Answer 1

Answer:

CRS would not benefit from dropping Donnelly’s Pizza because it would lose $43,680 in revenues and save $43,344 in costs resulting in a $336 decrease in operating income.

Explanation:

Difference: Incremental(Loss in Revenues)and Savings in Costs from dropping Donnelly’s Pizza:

Revenues $(43,680)

Cost of goods sold 26,180

Order processing ($14,000 – 10% × $14,000)= 12,600

Delivery ($3,500 – 20% × $3,500)= 2,800

Rush orders 924

Sales calls 840

Total costs 43,444

Effect on operating income (loss)

$(336)