Question

North Division has the following information:
Sales $1180000
Variable expenses 654000
Fixed expenses 620000
If this division is eliminated, the fixed expenses will be allocated to the company’s other divisions. What is the incremental effect on net income if the division is dropped?

Answer 1

Answer:

due to elimination

income will decrease by $526000

Explanation:

Given data

Sales =  $1180000  

Variable expenses = $654000  

Fixed expenses =  $620000

to find out

incremental effect on net income

solution

we know here total sale is $1180000 and Variable expenses is  $654000

so contribution  if the division is dropped is sales - Variable expenses

put these value

contribution = 1180000 - 654000

contribution = 526000

so we say that due to elimination

income will decrease by $526000