Question

The operations of Winston Corporation are divided into the Blink Division and the Blur Division. Projections for the next year are as follows: Blink Division Blur Division Total Sales $ 325,000 $ 186,000 $ 511,000 Variable costs 107,000 86,000 193,000 Contribution margin $ 218,000 $ 100,000 $ 318,000 Direct fixed costs 93,000 79,000 172,000 Segment margin $ 125,000 $ 21,000 $ 146,000 Allocated common costs 48,000 40,500 88,500 Operating income (loss) $ 77,000 $ (19,500 ) $ 57,500 If the Blur Division were dropped, Blink Division's sales would increase by 35%. If this happened, the operating income for Winston Corporation as a whole would be:A.$103,950.
B.$77,000.
C.$112,800.
D.$77,625.

Answer 1

Answer:

c. $112,800

Explanation:

The computation of operating income is shown below:-

= (Contribution margin of blink division × Increase sales percentage) - Fixed cost of blink division - Allocated common costs of blink division - Allocated common costs of blur division

= ($218,000 × 135%) - $93,000 - $48,000 - $40,500

= $294,300 - $93,000 - $48,000 - $40,500

= $112,800