A Really Big Corporation currently has two divisions which had the following ope

Question

A Really Big Corporation currently has two divisions which had the following operating results for last year:

Since the Rubber Division sustained a loss, the president of Big 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 Big 's total net operating income have been for the year?

$31,000 higher

$53,000 lower

$84,000 higher

$107,000 lower

Cork Rubber Division Division   Sales    $617,000       $302,000         Variable costs    293,000       195,000         Contribution margin    324,000       107,000         Fixed costs for the division    104,000       54,000         Segment margin    220,000       53,000         Allocated corporate fixed costs    94,000       84,000         Net operating income (loss)    $ 126,000       $(31,000)     

Explanation / Answer

Allocated corporate Fixed costs=$84,000

so the opearating income increased =$31,000

Net effect=$84,000-$31,000=$53,000

$53,000 will lower net operating income of cork division

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