Question

QS 10-14 Segment elimination LO A1 A division of a large company reports the information shown below for a recent year. Variable costs and direct fixed costs are avoidable, and 40 % of the indirect fixed costs are avoidable. Based on this information, should the division be eliminated? Sales 270,000 149,000 Variable costs Fixed costs Direct 32,000 56,000 $ (33,000) Indirect Operating loss 1-a. Compare the amounts of total revenues and total avoidable expenses Revenues Avoidable expenses Revenues are greater than (ess than) avoidable expenses by 203 400 es

Answer 1

Total avoidable expenses = Variable costs + Direct fixed costs + Indirect fixed costs x 40%

= 149,000+32,000+56,000 x 40%

= 149,000+32,000+22,400

= $203,400

Division should not be eliminated since revenues are more than avoidable costs.

Revenues	270,000
Avoidable expenses	203,400
Revenues are greater than avoidable expenses by	$66,600

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