Product lineOperations of Borderland Oil Drilling Services are separated into two geographical divisions: United States and Mexico. The operating results of each division for the year are as follows: United StatesMexicoTotalSales$10,080,000$5,040,000$15,120,000Variable costs(6,636,000)(2,923,200)(9,559,200)Contribution margin$3,444,000$2,116,800$5,560,800Direct fixed costs(1,120,000)(686,000)(1,806,000)Segment margin$2,324,000$1,430,800$3,754,800Corporate fixed costs(2,660,000)(1,246,000)(3,906,000)Operating income (loss)$(336,000)$184,800$(151,200)Corporate fixed costs are allocated to the divisions based on relative sales. Assume that all of a division’s direct fixed costs could be avoided by eliminating that division. Because the U.S. division is operating at a loss, Borderland’s president is considering eliminating it.a. If the U.S. division had been eliminated at the beginning of the year, what would have been Borderland’s pre-tax income? $

Corporate fixed costs are allocated to the divisions . They are not avoidable in case of elimination…

Answered: 686,000) (1,806,000) Segment margin…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Product line
Operations of Borderland Oil Drilling Services are separated into two geographical divisions: United States and Mexico. The operating results of each division for the year are as follows:

	United States	Mexico	Total
Sales	$10,080,000	$5,040,000	$15,120,000
Variable costs	(6,636,000)	(2,923,200)	(9,559,200)
Contribution margin	$3,444,000	$2,116,800	$5,560,800
Direct fixed costs	(1,120,000)	(686,000)	(1,806,000)
Segment margin	$2,324,000	$1,430,800	$3,754,800
Corporate fixed costs	(2,660,000)	(1,246,000)	(3,906,000)
Operating income (loss)	$(336,000)	$184,800	$(151,200)

Corporate fixed costs are allocated to the divisions based on relative sales. Assume that all of a division’s direct fixed costs could be avoided by eliminating that division. Because the U.S. division is operating at a loss, Borderland’s president is considering eliminating it.

a. If the U.S. division had been eliminated at the beginning of the year, what would have been Borderland’s pre-tax income? $

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