Question

The operations of Knickers Corporation are divided into the Pacers division and the Bulls division. Projections for the next year are as follows: Pacers Bulls Division Division Total Sales revenue $420,000 $252,000 $672,000 Variable expenses 147,000 115,500 262,500 Contribution margin $273,000 $136,500 $409,500 Direct fixed expenses 126,000 105,000 231,000 Segment margin $147,000 $ 31,500 $178,500 Allocated common costs 63,000 47,250 110,250 Total relevant benefit (loss) $ 84,000 $(15,750) $ 68,250 Operating income for Knickers Corporation as a whole if the Bulls division were dropped would be: a.$84,000. b.$99,750. c.$36,750. d.$68,250.

Answer 1

Answer:

c.$36,750

Explanation:

If Bulls Division were dropped, then the total segment margin would be $147,000 and the total common cost would be $110,250, Then:

Operating income = Segment margin - Total cost

                               = $147,000 - $110,250

                               = $36,750

Therefore, The Operating income for Knickers Corporation as a whole if the Bulls division were dropped would be $36,750.