Question

The Cook Corporation has two divisions--East and West. The divisions have the following revenues and expenses: East West Sales $ 500,000 $ 550,000 Variable costs 200,000 275,000 Traceable fixed costs 150,000 180,000 Allocated common corporate costs 135,000 170,000 Net operating income (loss) $ 15,000 $ (75,000 ) 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:

Answer 1

they have a loss of $155,000.

Step-by-step explanation:

Base on the scenario been described in the question, we have the following data

Net Operation income of west division = ($15,000 - $75,000)

Net Operation income of west division= -$60,000

To evolute operations of income we use the following method

West division’s net operating income if it’s discontinue = Net Operating Income - Allocated Common Corporate Cost

= ($15,000 - 170,000)

= -$155,000 (Negative shows loss).

Therefore, they have a loss of $155,000.

Answer 2

The correct answer is loss of $155,000.

Step-by-step explanation:

According to the scenario, computation of the given data are as follow:-

West division’s net operating income if it’s continue = ($15,000 - $75,000)

= -$60,000

We can calculate the net operating income if west discontinue by using following formula:-

West division’s net operating income if it’s discontinue = Net Operating Income - Allocated Common Corporate Cost

= ($15,000 - 170,000)

= -$155,000 (Negative shows loss).

Hence, Loss of $155,000.