Question

Gion Company is considering eliminating its windows division, which reported an operating loss for the recent year of $105,000. Division sales for the year were $1,110,000 and its variable costs were $975,000. The fixed costs of the division were $220,000. If the windows division is dropped, 65% of the fixed costs allocated to it could be eliminated. The impact on Gion’s operating income from eliminating this business segment would be:

Answer 1

Answer:

$8,000 increase

Explanation:

The computation of the impact on the operating income is shown below:

= Variable cost + fixed cost - sales revenue

= $975,000 + $143,000 - $1,110,000

= $1,118,000 - $1,110,000

= $8,000 increase

The fixed cost would be

= Fixed cost × eliminated percentage

= $220,000 × 65%

= $143,000

Simply we deduct the total cost from the sales revenue so that the impact can come.

All other information which is given is not relevant. Hence, ignored it