Answer:
With the escenario projected the financial disadvantage would have been :
($20,000)
Explanation:
This is the actual situation of the company where it gets a consolidated income of $85,000
CORK RUBBER Total Income Statement
$ 600,000 $ 350,000 $ 950,000 Total Net Sales
-$ 250,000 -$ 220,000 -$ 470,000 Variable Cost
$ 350,000 $ 130,000 $ 480,000 Operating Income
-$ 160,000 -$ 110,000 -$ 270,000 Traceable Fixed Costs
$ 190,000 $ 20,000 $ 210,000 Income Before Tax Expenses
-$ 80,000 -$ 45,000 -$ 125,000 Allocated Common Cost
$ 110,000 -$ 25,000 $ 85,000 Net Income
If the company implements the dropp of the Rubber division, it will generate a
disadvantage of ($20,000) because of the Allocated Common Cost.
It will be the projected escenario.
CORK RUBBER Total Income Statement
$ 600,000 $ 0,000 $ 600,000 Total Net Sales
-$ 250,000 $ 0,000 -$ 250,000 Variable Cost
$ 350,000 $ 0,000 $ 350,000 Operating Income
-$ 160,000 $ 0,000 -$ 160,000 Traceable Fixed Costs
$ 190,000 $ 0,000 $ 190,000 Income Before Tax Expenses
-$ 80,000 -$ 45,000 -$ 125,000 Allocated Common Cost
$ 110,000 -$ 45,000 $ 65,000 Net Income
Disadvantage ($ 20,000)
