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Soar Incorporated is considering eliminating its mountain bike division, which reported an operating loss for the recent year of $6,000. The division sales for the year were $1,060,000 and the variable costs were $863,000. The fixed costs of the division were $203,000. If the mountain bike division is dropped, 30% of the fixed costs allocated to that division could be eliminated. The impact on operating income for eliminating this business segment would be:
Soar Incorporated is considering eliminating its mountain bike division, which reported an operating loss for the recent year of $6,000. The division sales for the year were $1,060,000 and the variable costs were $863,000. The fixed costs of the division were $203,000. If the mountain bike division is dropped, 30% of the fixed costs allocated to that division could be eliminated. The impact on operating income for eliminating this business segment would be:
Answer:loss of $137,000.Explanation:Analysis of effects of eliminating business segmentIncome :Savings - Variable Costs $863,000Savings - Fixed Cost ($203,000 x 30%) $60,900Total Income $923,900Costs :Lost Sales $1,060,000Total Costs $1,060,000Financial Advantage/ (Disadvantage) ($137,000)therefore,The impact on operating income for eliminating this business segment would be: loss of $137,000....
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