D
David
Guest
Magma Corp. currently operates two divisions that have the following annual contribution margins:
West East
Sales $ 1,000,000 $ 500,000
Variable cost (620,000) (400,000)
Contribution margin 380,000 100,000
The West and East divisions have fixed costs of $200,000 and $150,000 respectively. 50% of these fixed costs are directly traceable to the divisions; the remainder is corporate overhead cost which is allocated based on sales revenue.
At the beginning of the year, the president of Magma Corp. had considered closing the East division because of a history of poor performance. If the East division had been eliminated, what would the operating income of Magma Corp. for last year have been?
$50,000 higher
OR
$25,000 higher
OR
$25,000 lower
OR
$50,000 lower
West East
Sales $ 1,000,000 $ 500,000
Variable cost (620,000) (400,000)
Contribution margin 380,000 100,000
The West and East divisions have fixed costs of $200,000 and $150,000 respectively. 50% of these fixed costs are directly traceable to the divisions; the remainder is corporate overhead cost which is allocated based on sales revenue.
At the beginning of the year, the president of Magma Corp. had considered closing the East division because of a history of poor performance. If the East division had been eliminated, what would the operating income of Magma Corp. for last year have been?
$50,000 higher
OR
$25,000 higher
OR
$25,000 lower
OR
$50,000 lower