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 $42,500. The division sales for the year were $969,500 and the variable costs were $480,000. The fixed costs of the division were $532,000. 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:

$276,700 increase

$489,500 decrease

$212,800 increase

$276,700 decrease

$489,500 increase

Explanation / Answer

Granfield Company Operating Income comparison Details BackPAch division Differential result if Backpack div is dropped Sales                       969,500                                       -   Variable cost                     480,000                                       -   Contribution Margin                     489,500                                       -   Fixed cost                     532,000                           319,200 Net operating income                       (42,500)                         (319,200) Net Increase in Operating Loss if Backpack div is dropped                     276,700 So net operating income will further decrease by   $           276,700.00

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