Question

The Pritchett 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 Pritchett 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

($155,000)

Step-by-step explanation:

The computation of the net operating income or loss by considering the elimination of the west division is shown below:

Sales $500,000

Less:

Variable Cost ($200,000)

Traceable Fixed cost ($150,000)

Common Corporate cost ($305,000) ($135,000 + $170,000)

Net Operating Loss ($155,000)

We simply deduct the all cost from the sales revenue so that the net operating loss could come