The operations of Winston Corporation are divided into the Blink Division and th

Question

The operations of Winston Corporation are divided into the Blink Division and the Blur Division. Projections for the next year are as follows:

Operating income for Winston Corporation, as a whole, if the Blur Division was dropped would be:

$85,000.

$111,500.

$58,500.

$40,500.

Blink Division Blur Division Total Sales $ 345,000 $ 191,000 $ 536,000 Variable costs 111,000 90,000 201,000 Contribution margin $ 234,000 $ 101,000 $ 335,000 Direct fixed costs 97,000 83,000 180,000 Segment margin $ 137,000 $ 18,000 $ 155,000 Allocated common costs 52,000 44,500 96,500 Operating income (loss) $ 85,000 $ (26,500 ) $ 58,500

Explanation / Answer

If the Blur division was dropped then variable cost and direct fixed cost relating to Blur division will not incur but total common cost will continue to incur. The operating income for Winston Corporation as a whole, if the Blur Division was dropped is calculated as follows:-

Therefore the operating income for Winston Corporation, as a whole, if the Blur Division was dropped would be $40,500.

Hence the correct option is D) $40,500.

Blink Division Sales 345,000 Less: Variable Costs 111,000 Contribution Margin 234,000 Less: Direct fixed costs 97,000 Segment Margin 137,000 Less: Common Costs 96,500 Operating Income 40,500

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