Green Industries has two sales territories-East and West. Financial infomration
ID: 2357836 • Letter: G
Question
Green Industries has two sales territories-East and West. Financial infomration for the two territories is presented below: Sales: East $980,000 West $750,000; Direct Costs: Variable: East $(343,000), West $(225,000); Fixed: East $(450,000), West $(325,000); Allocated Common Costs: East $(275,000), West $(175,000); Net income (loss) East $(88,000), West $25,000 Because the company is in a start up stage, corporate management feels that the East sales territory is creating too much of a cash drain on the company and it should be eliminated. If the East territory is discontinued, one sales manager (whose salary is $40,000 per year) will be relocated to the West territory. By how much would Green's income change if the east territory is eliminated? a) increase by $88,000; b) increase by $48,000; c) decrease by $267,000; d) decrease by $227,000Explanation / Answer
4 Green Industries has two sales territories-East and West. Financial information for the two territories is presented below: Sales Direct costs: Variable Fixed Allocated common costs Net income (loss) East $980,000 West $750,000 (343,000) (450,000) (275,000) $(88,000) (225,000) (325,000) (175,000) $ 25,000 Because the company is in a start-up stage, corporate management feels that the East sales territory is creating too much of a cash drain on the company and it should be eliminated. the East If territory is discontinued, one sales manager (whose salary is $40,000 per year) will be relocated to the West territory. By how much would Green's income change if the East territory is eliminated?
d.decrease by $227,000 -----------correct Answer:
Sales foregone in East Variable costs avoided Fixed costs avoided Decrease in income from eliminating East territory 3
=$(980,000)
=343,000
=410,000
Decrease in income from eliminating East territory =$(227,000)
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