The Kelsh Company has two divisions North and South. The divisions have the following revenues an...
The Kelsh Company has two divisions North and South. The divisions have the following revenues and expenses:
| North | South | ||||
| Sales | $700,000 | $600,000 | |||
| Less Operating Expenses: | |||||
| Variable Expenses | 350,000 | 250,000 | |||
| Traceable Fixed Expenses | 200,000 | 160,000 | |||
| Allocated Common Corporate Expenses | 180,000 | 730,000 | 120,000 | 530,000 | |
| Net Operating Income (Loss) | $( 30,000) | $ 70,000 | |||
Management at Kelsh is pondering the elimination of North
Division. If North Division were eliminated, its traceable fixed
expenses could be avoided. The total common corporate expenses
would be unaffected.
INSTRUCTIONS Compute the amount of total operating income
that would result if Kelsh dropped the North Division. Match each
of the following with the correct amount:
| A. |
$700,000 |
| B. |
$1,300,000 |
| C. |
$300,000 |
| D. |
$350,000 |
| E. |
No |
| F. |
$250,000 |
| G. |
$600,000 |
| H. |
$360,000 |
| I. |
($110,000) |
| J. |
$160,000 |
| K. |
$300,000 |
| L. |
$600,000 |
| M. |
$40,000 |
|
Homework Answers
In order to answer the questions above, let's prepare the income statement to understand the sales revenue, contribution, operating income (loss) under 2 scenarios. i.e., When both North and South Division are functioning and when North Division is eliminated. Please see the below table for detailed calculations.
Answer to the following questions, based on the workings above;
| - A. B. C. D. E. F. G. H. I. J. K. L. M. | What is the total amount of revenues if the North Division is NOT dropped? |
B. $1,300,000 |
| - A. B. C. D. E. F. G. H. I. J. K. L. M. | What is the total amount of revenue if the North Division is dropped? |
G. $600,000 |
| - A. B. C. D. E. F. G. H. I. J. K. L. M. | What is the total amount of contribution margin if the North Division is NOT dropped? |
A. $700,000 |
| - A. B. C. D. E. F. G. H. I. J. K. L. M. | What is the total amount of contribution margin in the North Division is dropped? |
D. $350,000 |
| - A. B. C. D. E. F. G. H. I. J. K. L. M. | What is the total amount of variable expenses if the North Division is NOT dropped? |
L. $600,000 |
| - A. B. C. D. E. F. G. H. I. J. K. L. M. | What is the total amount of variable expenses if the North Division is dropped? |
F. $250,000 |
| - A. B. C. D. E. F. G. H. I. J. K. L. M. | What is the total amount of traceable fixed costs if the North Division is NOT dropped? |
H. $360,000 |
| - A. B. C. D. E. F. G. H. I. J. K. L. M. | What is the total amount of traceable fixed costs if the North Division is dropped? |
J. $160,000 |
| - A. B. C. D. E. F. G. H. I. J. K. L. M. | What is the total amount of allocated common corporate expenses if the North Division is NOT dropped? |
C. $300,000 |
| - A. B. C. D. E. F. G. H. I. J. K. L. M. | What is the total amount of allocated common corporate expenses if the North Division is dropped? |
K. $300,000 |
| - A. B. C. D. E. F. G. H. I. J. K. L. M. | What is the total amount of net income or (net loss) if the North Division is NOT dropped? |
M. $40,000 |
| - A. B. C. D. E. F. G. H. I. J. K. L. M. | What is the total amount of net income or (net loss) if the North Division is dropped? |
I. ($110,000) |
| - A. B. C. D. E. F. G. H. I. J. K. L. M. | Would you recommend that Kelsh drop the North Division? |
E. No |
| As the elimination of North Division would lead to Net operating loss, it is recommended to continue with operating North Division |
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