Question

Based on the segment income statement below, Chips, Inc. is considering eliminating its Barbecue Division line. Revenue from Barbecue Division sales $ 528,000 Salaries for Barbecue Division workers (128,000 ) Direct material (342,000 ) Sunk costs (equipment depreciation) (82,000 ) Allocated company-wide facility-sustaining costs (64,000 ) Net loss $ (88,000 ) If the Division is eliminated, what is the total amount of avoidable cost?

Answer 1

$470,000

Step-by-step explanation:

Calculation to determine the total amount of avoidable cost

Salaries for Barbecue Division workers $128,000

Add Direct material $342,000

Avoidable Cost $470,000

($128,000+$342,000)

Therefore the total amount of avoidable cost will be $470,000