The Kelsh Company has two divisions--North and South. The divisions have the fol

Question

The Kelsh Company has two divisions--North and South. The divisions have the following revenues and expenses:

244,000    

194,000   

$(56,000)   

$108,000   

    
Management at Kelsh is pondering the elimination of North Division. If North Division were eliminated, its traceable fixed expenses could be avoided. The total common corporate expenses would be unaffected. Given these data, the elimination of North Division would result in an overall company net operating income (loss) of:

$164,000

$52,000

$108,000

$(136,000)

North South   Sales $940,000     $844,000      Variable expenses 468,000     312,000      Traceable fixed expenses 284,000     230,000      Allocated common corporate expenses

244,000    

194,000   

  Net operating income (loss)

$(56,000)   

$108,000   

Explanation / Answer

The elimination of North Division would result in an overall company net operating (loss) of:

South Division Profit        108000

Less: Allocated common corporate expenses(North div.)    244000

Net operating (loss)    108000- 244000= (136000)

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