Answer:
Operating income for the Smith's corporation as a whole if the Jackson's division were dropped is $22,500
Explanation:
The operations of Smith's Corporation are divided into the Child Division and the Jackson Division. Projections for the next year are as follows:
Child Division Jackson Division Total
Sales revenue $250,000 $180,000 $430,000
Variable expenses 90,000 100,000 190,000
Contribution margin $160,000 $80,000 $240,000
Direct fixed expenses 75,000 62,500 137,500
Segment margin $85,000 $17,500 $102,500
Allocated common costs 35,000 27,500 62,500
Total relevant benefit $50,000 $(10,000) $40,000
Operating income for the Smith's corporation as a whole if the Jackson's division were dropped
Child Division
Sales revenue $250,000
Variable expenses 90,000
Contribution margin $160,000
Direct fixed expenses 75,000
Segment margin $85,000
Allocated common costs 62,500
Total relevant benefit $22,500
Note that common fixed costs will be borne by the child division alone when the Jackson division is closed which is the entire 62,500 is deducted from the sales margin of child division before arriving at profit
