Question

he Cook Corporation has two divisions--East and West. The divisions have the following revenues and expenses:

East West
Sales $ 585,000 $ 473,000
Variable costs 174,000 228,300
Traceable fixed costs 145,500 207,000
Allocated common corporate costs 131,000 176,800
Net operating income (loss) $ 134,500 $ (139,100 )

The management of Cook is considering the elimination of the West Division. If the West Division were eliminated, its traceable fixed costs could be avoided. Total common corporate costs would be unaffected by this decision. Given these data, the elimination of the West Division would result in an overall company net operating income (loss) of:

A. $134,500B. $(42,300)C. $(139,100)D. $(4,600)

Answer 1

Answer:

The elimination of the West Division would result in an overall company net operating loss of -$42,300

Explanation:

In order to calculate what would of the net operating income of the company is of the management of cook consider to eliminate the west division, we would have to make the following calculation:

Net income if Discontinue=Sales-variable cost-Trecable fixed expense- Allocated common corporate cost

                                          =$ 585,000- $174,000-$145,500-$307,800

                                          =-$42,300

The elimination of the West Division would result in an overall company net operating loss of -$42,300