The operations of Smits Corporation are divided into the Child Division and the

Question

The operations of Smits Corporation are divided into the Child Division and the Jackson Division. Projections for the next year are as follows:

Operating income for Smits Corporation as a whole if the Jackson Division were dropped would be?

Child
Division Jackson
Division
Total Sales revenue $250,000 $180,000 $430,000 Variable expenses   90,000 100,000 190,000 Contribution margin $160,000 $80,000 $240,000 Direct fixed expenses   75,000   62,500 137,500 Segment margin $85,000 $17,500 $102,500 Allocated common costs   35,000   27,500   62,500 Total relevant benefit (loss) $50,000 $(10,000) $40,000

Explanation / Answer

Current Total relevant benefit (loss) 40000 Loss in Contribution margin -80000 Avoidable Direct fixed expenses 62500 Operating income if the Jackson Division were dropped 22500

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