Soar Incorporated is considering eliminating its mountain bike division, which r

Question

Soar Incorporated is considering eliminating its mountain bike division, which reported an operating loss for the recent year of $3,000. The division sales for the year were $1,050,000 and the variable costs were $860,000. The fixed costs of the division were $193,000. If the mountain bike division is dropped, 30% of the fixed costs allocated to that division could be eliminated. The impact on operating income for eliminating this business segment would be: O $190,000 increase O $54,900 decrease O $57900 decrease O $190,000 decrease O $132100 decrease

Explanation / Answer

Upon elimination;fixed costs incurred would be equal to=$193000*70%=$135100

Hence decrease in operating income=($135100-$3000)

=$132100 decrease.

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