The Cook Corporation has two divisions--East and West. The divisions have the fo

Question

The Cook Corporation has two divisions--East and West. The divisions have the following revenues and expenses:

The management of Cook is considering the elimination of the West Division. If the West Division were eliminated, its traceable fixed costs could be avoided. Total common corporate costs would be unaffected by this decision. Given these data, the elimination of the West Division would result in an overall company net operating income (loss) of:

Multiple Choice

$91,900

$(64,100)

$(142,000)

$(50,100)

East West Sales $ 603,000 $ 506,000 Variable costs 231,000 300,000 Traceable fixed costs 151,500 192,000 Allocated common corporate costs 128,600 156,000 Net operating income (loss) $ 91,900 $ (142,000 )

Explanation / Answer

East Division West Division Total Sales 6,03,000 5,06,000 11,09,000 Variable costs 2,31,000 3,00,000 5,31,000 Traceable fixed costs 1,51,500 1,92,000 3,43,500 Allocated common corporate costs 1,28,600 1,56,000 2,84,600 Total Costs 5,11,100 6,48,000 11,59,100 Net operating income (loss) 91,900 -1,42,000 -50,100 Data post Closure of West Division: East Division Total Sales 6,03,000 6,03,000 Variable costs 2,31,000 2,31,000 Traceable fixed costs* 1,51,500 1,51,500 Allocated common corporate costs** 2,84,600 2,84,600 Total Costs 6,67,100 6,67,100 Net operating income (loss) -64,100 -64,100 Note 1 *Traceable cost of West Division are avoided due to closure of West Division. Note 2 ** Due to Closoure of West Division Total Common Corporate costs will be allocated to East Division. Note 3 Allocable Common Cost are of Sunk Cost Nature; These are Unavoidable costs. So, the answer is (64100)

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