Help Save&Exit; Granfield Company is considering eliminating its backpack divisi

Question

Help Save&Exit; Granfield Company is considering eliminating its backpack division, which reported an operating loss for the recent year of S42?. The d vision sales or the year were $961.900 and the variable costs were $476 000 The fixed costs of the division were S528,000 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 Multiple Choice $274,700 increase $485,900 decrease $211,200 increase $274,700 decrease $485,900 increase ?Prev 16 of 30 Next-.>

Explanation / Answer

1) Impact on Operating Income ;-

2)

Cost of Purchase outside :-

Net Incremental Cost or Saving of Buying :-

= $48.60 - $47.30

= $1.30 Cost Per Unit

3) Calculation of Relevant cost ;-

Buy since the relevant cost to make it is $57.50

Particulars Amount($) Revenues lost (961900) Variable costs avoided 476000 Fixed costs eliminated ($528000*40%) 211200 Impact on operating income (274700) Decrease

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