Question

The Cook Corporation has two divisions--East and West. The divisions have the following revenues and expenses: East WestSales $ 603,000 $ 506,000 Variable costs 231,000 300,000 Traceable fixed costs 151,500 192,000 Allocated common corporate costs 128,600 156,000 Net operating income (loss) $ 91,900 $ (142,000 )The management of Cook is considering the elimination of the West Division. If the West Division were eliminated, its traceable fixed costs could be avoided. Total common corporate costs would be unaffected by this decision. Given these data, the elimination of the West Division would result in an overall company net operating income (loss) of:Multiple Choice$91,900$(64,100)$(142,000)$(50,100)

Answer 1

If management eliminates West division, the financials will look like this:

Sales $ 603,000

Variable costs 231,000

Traceable fixed costs 151,500 Allocated common corporate costs 284,000

Net operating Loss $ (64,100 )

Net loss before eliminating west = -$50,100

West should not be shut down because it increases the business losses.