Question

Managers are evaluating the performance of Benson​ Company's six divisions. The managers are considering discontinuing its Mason Division because it is currently operating at a loss. Below is its cost and profit​ information: The Other Five Divisions Mason Division Total Sales ​$1,664,200 ​$96,200 ​$1,760,400 Variable Costs ​$1,178,520 ​$85,000 ​$1,263,520 Contribution Margin ​$485,680 ​$11,200 ​$496,880 Fixed Costs ​$327,940 ​$35,070 ​$363,010 Operating Income ​$157,740 ​($23,870) ​$133,870 If the Mason Division is​ eliminated, $26,400 of fixed costs will be eliminated. Should the Mason Division be​ eliminated?A.No, because operating income will decrease by​ $11,200
B.​Yes, because operating income will increase by​ $23,870
C.​No, because operating income will decrease by​ $96,200
D.​Yes, because operating income will increase by​ $15,200

Answer 1

Answer:

Option D is the correct answer.

Yes,it should be eliminated. Because operating income will increase by​ $15,200

Explanation:

Increase (Decrease) in operating income

= Avoidable fixed costs - Contribution margin lost

= 26,400 - 11,200

= $15,200