Anderson Document Services, a document creation and copying company, has two dep

Question

Anderson Document Services, a document creation and copying company, has two departments, Design and Copying. The company's most recent monthly contribution format income statement followS Department Total 303,500 191,500 Copying 84,500 219,000 146,000 Design $495,000 $130,000 $365,000 Sales Variable expenses 45,500 Contribution margin Fixed expenses 82,160 51,350 30,810 Operating income (loss) $109,340 S (5,850) $115,190 A study indicates that $23,675 of the fixed expenses being charged to the Design Department are sunk costs or allocated costs that will continue even if the Design Department is dropped. In addition, the elimination of the Design Department would result in a 5% decrease in the sales of the Copying Department. Requirea a. If the Design Department is dropped, what will be the effect on the operating income of the company as a whole? Operating income decreased by

Explanation / Answer

Loss in contribution margin of Design -45500 Loss in contribution margin of Copying -7300 =146000*5% Avoidable fixed cost 27675 =51350-23675 Change in profits -25125 Operating profit decreased by $25125

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