Division A $ 948,000 $960,000 Sales $504,000 $1,240,000 Cost of goods sold Selling, general, and administrative expenses 930,000 765,000 440,000 925,000 96,000 202,500 144,000 210,000 $ (32,000) $ 51,000 $ 105,000 Operating income/loss S(184,500) Further analysis of costs reveals the following percentages of variable costs in each division: 90% Cost of goods sold Selling, general, and administrative expenses 80% 90% 85% 50% 60% 60% 50% Closing down any division would result in savings of 40% of the fixed costs of that division. Top management is very concerned about the unprofitable divisions (A and B) and is considering clos- ing them for the year. Required 1. Calculate the increase or decrease in operating income if Ainsley closes division A. 2. Calculate the increase or decrease in operating income if Ainsley closes division B. 3. What other factors should the top management of Ainsley consider before making a decision?

Division A $ 948,000 $960,000 Sales $504,000 $1,240,000 Cost of goods sold Selling, general, and administrative expenses 930,000 765,000 440,000 925,000 96,000 202,500 144,000 210,000 $ (32,000) $ 51,000 $ 105,000 Operating income/loss S(184,500) Further analysis of costs reveals the following percentages of variable costs in each division: 90% Cost of goods sold Selling, general, and administrative expenses 80% 90% 85% 50% 60% 60% 50% Closing down any division would result in savings of 40% of the fixed costs of that division. Top management is very concerned about the unprofitable divisions (A and B) and is considering clos- ing them for the year. Required 1. Calculate the increase or decrease in operating income if Ainsley closes division A. 2. Calculate the increase or decrease in operating income if Ainsley closes division B. 3. What other factors should the top management of Ainsley consider before making a decision?

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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