ABC Company has 3 divisions: X, Y, and Z . Division X\'s income statement shows
ID: 2480338 • Letter: A
Question
ABC Company has 3 divisions: X, Y, and Z . Division X's income statement shows the following for the year ended December 31: Sales $1,000,000; Cost of Goods Sold $800,000; Gross Profit $200,000; Selling expenses $100,000; Administrative expenses $250,000; Net Loss $150,000. Cost of goods sold is 75 percent variable and 25 percent fixed. Of the fixed costs, 60 percent are avoidable if Division X were eliminated. Of the administrative expenses, 90 percent are applied from corporate costs. If Division X were eliminated, ABC's income would a) increase by $150,000; b) decrease by $75,000; c) decrease by $155,000 or d) decrease by $215,000
Explanation / Answer
c) decrease by $155,000 Statement showing computations Particulars Division X Sales 1,000,000.00 Variable Costs: Costs of Goods Sold = 800,000*75% 600,000.00 Selling Expenses = 100,000 100,000.00 Total Variable Costs 700,000.00 Contribution = Sales -VC 300,000.00 Fixed Costs: Costs of Goods Sold = 800,000*25%*60% 120,000.00 Admin Expenses = 250,000*10% 25,000.00 Total Fixed Costs 145,000.00 Income =Cont - FC 155,000.00