The High School Musical Company has two divisions- Troy and Gabriella. Troy has

Question

The High School Musical Company has two divisions- Troy and Gabriella. Troy has a segment margin of $220,000. Gabriella has a segment margin of $30,000 Common fixed costs total $170,000. $50,000 of this amount is allocated to the Gabriella division. Management at High School is considering the elimination of the Gabriella Division since it has shown an operating loss for the past several years. Which of the following statements is correct if the Gabriella Division is eliminated? O A. The company's operating income would increase by $20,000 O B. Troy's segment margin would decrease by $50,000. O C. The company's common fixed costs would equal $120,000. O D. The company's operating income would decrease by $110,000. O E. The company's operating income would equal $50,000.

Explanation / Answer

Solution: E. The company's operating income would equal $50,000.

working :

Before elimination After elimination Segment margin $250,000 $220,000 Less: Common fixed costs $170,000 $170,000 Operating Income $80,000 $50,000

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