Question

Wilbur Division has the following information: Sales $900,000 Variable expenses 620,000 Fixed expenses 310,000 If this division is eliminated, all $310,000 of the fixed expenses will be allocated to the company’s other divisions. The incremental effect on income if the division is dropped is Group of answer choices

Answer 1

The incremental effect on income if the division is dropped is that Net income will reduce by $280,000

Step-by-step explanation:

Fixed Expenses will continue to incur at the same level if the division is dropped and hence, fixed costs are unavoidable

Incremental effect on net income if the division is dropped = Costs avoided - Revenues lost

= $620,000 - $900,000

= -$280,000

Conclusion: Net income will reduce by $280,000