A division of a large company reports the information shown below for a recent y

Question

A division of a large company reports the information shown below for a recent year. Variable costs and direct fixed costs are avoidable, and 40% of the indirect fixed costs are avoidable. Based on this information, should the division be eliminated? Sales Variable costs Fixed costs $ 280,000 152,000 Direct Indirect 32,000 54,000 Operating loss $ (42,000) 1-a. Compare the amounts of total revenues and total avoidable expenses. Revenues Avoidable expenses Revenues are greater than (less than) avoidable expenses by 1-b. Based on this information, should the division be eliminated? O Yes No

Explanation / Answer

1a Revenues 280000 Avoidable expense 205600 =152000+32000+(54000*40%) Revenues are greater than (less than) avoidable expenses by 74400 1b No, The division should not be eliminated because its sales of are greater than its avoidable expenses

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