Since the Rubber Division sustained a loss, the president of Vanikoro is conside
ID: 2436114 • Letter: S
Question
Since the Rubber Division sustained a loss, the president of Vanikoro is considering the elimination of this division. All of the fixed costs for the division could be eliminated if the division was dropped. If the Rubber Division was dropped at the beginning of last year, how much higher or lower would Vanikoro's total net operating income have been for the year?
Answer should be one of these. Elaboration please for life saver. Thanks!
$10,000 higher $40,000 lower $50,000 higher $100,000 lower
Explanation / Answer
$40,000 lower
Net Operating Loss of Rubber Division = ($10,000)
Total Net Operating INcome = ($10,000) + $50,000 = ($40,000)
If the Rubber division dropped at the beginning of last year, then the company would have $40,000 lower net operating income.
If the Rubber division discontinue its operations, the total net operating income of the company would be = ($10,000) + $50,000 Allocated Corporate Fixed Costs. Why because the allocated corporate fixed costs would incur on Cork Division.
Hence, the Total Net operating income would be $40,000 lower
Thus, the right option is $40,000 lower