Mason Transport Company divides its operations into four divisions. A recent inc

Question

Mason Transport Company divides its operations into four divisions. A recent income statement for its West Division follows MASON TRANSPORT COMPANY West Division Income Statement for the Year 2015 Revenue Salaries for drivers Fuel expenses Insurance Division-level facility-sustaining costs Companywide facility-sustaining costs S 250,000 (175,000) (25,000) (35,000) (20,000) (65,000) Net loss s (70,000) Required a-1. By how much would companywide income increase or decrease if West Division is eliminated? come would by a-2. Should West Division be eliminated? O Yes 0 No b-1. Assume that West Division is able to increase its revenue to $270,000 by raising its prices. Determine the amount of the increase or decrease that would occur in companywide net income. come would b-2. Should West Division be eliminated if revenue were $270,000? O Yes O No c. What is the minimum amount of revenue required to justify continuing the operation of West Division? Minimum amount of revenue

Explanation / Answer

a-1) Income would increase by $5,000. Since company wide sustaining cost is $65,000 it is only cost has to incurre even division eliminated. Current loss is $70,000 hence company can save $5,000 ($70,000-$65,000) by eliminating West Division.

a-2) Yes

b-1) Income would increase by $20,000. Since total loss reduced to $50,000 ($70,000-$20,000) by increasing revenue by $20,000.

b-2) No

c) Minimum amount of revenue is $255,000 to continue, then its loss is equal ($65,000) to company wide sustaining cost i.e. $65,000.

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