Question

Granfield Company is considering... Granfield Company is considering eliminating its backpack division, which reported an operating loss for the recent year of $42,300. The division sales for the year were $965,700 and the variable costs were $478,000. The fixed costs of the division were $530,000. If the backpack division is dropped, 40% of the fixed costs allocated to that division could be eliminated. The impact on Granfield's operating income for eliminating this business segment would be:____.

a. $269,200 increase.
b. $476,000 decrease.
c. $206,800 increase.
d. $269,200 decrease.
e. $476,000 increase.

Answer 1

$275,700 Decrease

Step-by-step explanation:

Calculation to determine what The impact on Granfield's operating income for eliminating this business segment would be:

Using this formula

Impact on Operating income=Saving in Relevant fixed cost -Loss of Contribution Margin of backpack division

Let plug in the morning

Impact on Operating income=($530,000*40%)-($965,700-$478,000)

Impact on Operating income=$212,000-$487,700

Impact on Operating income=$275,700

Decrease in net Operating income

Therefore The impact on Granfield's operating income for eliminating this business segment would be:$275,700 Decrease