Question

Mason Transport Company divides its operations into four divisions. A recent income statement for its West Division follows. MASON TRANSPORT COMPANY West Division Income Statement for the Year 2015 Revenue $ 250,000 Salaries for drivers (175,000 ) Fuel expenses (25,000 ) Insurance (35,000 ) Division-level facility-sustaining costs (20,000 ) Companywide facility-sustaining costs (65,000 ) Net loss $ (70,000 ) Required a-1. By how much would companywide income increase or decrease if West Division is eliminated?

Answer 1

a-1 $5,000 Increase

a-2 YES

b $15,000 Increase

Step-by-step explanation:

a-1 Calculation for how much would companywide income increase or decrease if West Division is eliminated

Using this formula

Income =Net loss - Company-wide facility sustaining costs

Let plug in the formula

Income =$70,000-$65,000

Income =$5,000 Increase

Therefore how much would companywide income increase if West Division is eliminated is $5,000

a-2 YES West Division should be eliminated based on the above calculation reason been that the net income will increase by the amount of $5,000

b. Calculation to Determine the amount of the increase or decrease that would occur in companywide net income.

Net income =($ 270,000-$250,000)-$5,000

Net income=$20,000-$5,000

Net income=$15,000 Increase

Based on the above calculation the net income would increase by the amount of $15,000

Therefore the amount of the increase that would occur in companywide net income is $15,000