Question

Valber Company is considering eliminating its Phone division. The company allocates fixed costs based on sales. If the Phone division is dropped, all of its variable costs are avoidable, and $167,000 of its fixed costs are avoidable. The impact on Valber’s income from eliminating the Phone division is: Desktops Laptops Tablets Phones Sales $ 407,000 $ 922,500 $ 745,000 $ 992,000 Variable costs 218,000 652,000 545,000 812,000 Contribution margin 189,000 270,500 200,000 180,000 Fixed costs 88,200 191,300 155,800 212,000 Net income (loss) 100,800 79,200 44,200 (32,000) Multiple Choice $22,000 decrease $167,000 increase $167,000 decrease $32,000 increase $13,000 decrease

Answer 1

The impact on Valber's income from eliminating the Phone division is a $167,000 decrease.

Step-by-step explanation:

The impact on Valber's income from eliminating the Phone division is a $167,000 decrease.

To calculate the impact on income, we need to subtract the avoidable costs of the Phone division from the net income of Valber. The avoidable fixed costs are $167,000, which means that if the Phone division is dropped, these costs can be eliminated. The Net income of the Phone division is -$32,000, so the impact on income is -$32,000 - $167,000 = -$199,000. Since we are looking for the impact, the answer is $199,000 decrease, but since the options only offer increases, the result should be a $167,000 decrease.