Granfield Company is considering eliminating its backpack division, which report

Question

Granfield Company is considering eliminating its backpack division, which reported an operating loss for the recent year of $43,000. The division sales for the year were $979,000 and the variable costs were $485,000. The fixed costs of the division were $537,000. If the backpack division is dropped, 40% of the fixed costs allocated to that division could be eliminated. The impact on Granfield's operating income for eliminating this business segment would be: $279,200 increase $494,000 increase $494,000 decrease $279,200 decrease $214,800 increase

Explanation / Answer

Current Situation Sale                979,000 Variable Cost                485,000 Contribution                494,000 Fixed Cost                537,000 Profit                -43,000 If eliminating Business Sale                979,000 Variable Cost                485,000 Contribution                494,000 Fixed Cost                322,200 Profit                171,800 Net Impact profit will increase 171800+43000=         214,800 Profit will increase by $214,800

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