Final answer:
If the Division is eliminated, the total amount of avoidable cost would be equal to the variable costs of $15,000, as fixed costs are already incurred and unavoidable in the short term.
Step-by-step explanation:
When assessing whether a business division should shut down, it is important to consider the avoidable costs that would be eliminated if the division ceased operations. In this case, since the center's variable costs of $15,000 exceed its revenues of $10,000, it is incurring a loss from operations. The shutdown point is reached when a firm's revenue is less than its avoidable (variable) costs because fixed costs have already been incurred and cannot be recovered in the short term. Therefore, if the division ceases operations, the total avoidable cost will be equal to the variable costs, which are $15,000. This is because by not producing, the division does not incur any variable costs. However, fixed costs will remain as they are unavoidable in the short run, whether the division operates or not.
For a true economic profit calculation, you must also subtract both the explicit and implicit costs from total revenues (Economic profit = Total Revenues - Explicit Costs - Implicit Costs). In another given example, a firm with $200,000 in total revenues, $85,000 in explicit costs, and $125,000 in implicit costs would have an economic profit of -$10,000 per year, further illustrating the financial implications of business costs on profitability decisions.