Question

Campbell Transport Company divides its operations into four divisions. A recent income statement for its West Division follows. CAMPBELL TRANSPORT COMPANY West Division Income Statement for Year 3 Revenue $ 540,000 Salaries for drivers (390,000 ) Fuel expenses (54,000 ) Insurance (74,000 ) Division-level facility-sustaining costs (44,000 ) Companywide facility-sustaining costs (134,000 ) Net loss $ (156,000 ) Required By how much would companywide income increase or decrease if West Division is eliminated? Should West Division be eliminated? Assume that West Division is able to increase its revenue to $600,000 by raising its prices. Determine the amount of the increase or decrease that would occur in companywide net income if the segment were eliminated. Should West Division be eliminated if revenue were $600,000? What is the minimum amount of revenue required to justify continuing the operation of West Division?

Answer 1

Answer:

Explanation:

1) Revenue  $540,000

less: Salaries for drivers  (390,000)

Fuel expense  (54,000)

insurance  (74,000)

Division line  (44,000)

Net loss  (22,000)

If division is eliminated the income would increase by $22,000

So it should be eliminated.

2) Decrease in income = $600,000 - ($540,000+$22,000)

= $38,000

3) What is the minimum amount of revenue required = 600,000 - 38,000 = $562,000