Simpson Corporation operates two division with the following operating results f
ID: 2370955 • Letter: S
Question
Simpson Corporation operates two division with the following operating results from last year:
Western Division Eastern Division Total
Sales 620,000 290,000 $900,000
Variable costs 310,000 200,000 $510,000
contributing margin 310,000 90,000 $400,000
avoidable fixed costs 110,000 70,000 $180,000
allocated fixed costs 90,000 45,000 $135,000
operating income (loss) 100,000 (25,000) $75,000
Management is considering wether the Eastern Division should be discontinued since it incurred an operating lost last year. Allocated common fixed cost would continue for Simpson Corporation whether the division is discontinued or not.
If the Eastern Division has been discontinued at the beginning of last year what would be the total operating income for Simpsom Corporation have been for the year?
Explanation / Answer
If the eastern division is discontinued they would still incur allocated fixed costs of 45,000. Hence the total operating income will be 75000 + 25000 - 45000 = 55000