### Assessing the Impact of Eliminating a Business SegmentGion Company is considering eliminating its windows division, which reported an operating loss for the recent year of $125,000. Division sales for the year were $1,310,000 and its variable costs were $1,175,000. The fixed costs of the division were $270,000. If the windows division is dropped, 60% of the fixed costs allocated to it could be eliminated. The impact on Gion’s operating income from eliminating this business segment would be:#### Multiple Choice Options:1. $56,700 decrease2. $27,000 increase3. $162,000 decrease4. $162,000 increase5. $27,000 decrease#### Explanation:The decision revolves around understanding the contribution each segment provides to the operating income and calculating how much of the fixed costs would remain even if the division is eliminated.- **Sales:** $1,310,000- **Variable Costs:** $1,175,000Operating income (loss) before any fixed costs:\[ \text{Operating Income} = \text{Sales} - \text{Variable Costs} = \$1,310,000 - \$1,175,000 = \$135,000 \]Adding the fixed costs:\[ \text{Total Operating Loss} = \$135,000 - \$270,000 = \$-135,000 \]If the division is eliminated, and 60% of the fixed costs can be removed, then:\[ \text{Fixed Costs to Remove} = 60\% \times \$270,000 = \$162,000 \]The fixed costs remaining:\[ \text{Fixed Costs Remaining} = \$270,000 - \$162,000 = \$108,000 \]Impact on operating income:\[ \text{Impact on Income} = \$135,000 - \$108,000 = \$27,000 \]With the elimination, this would be an increase in operating income. Therefore, the correct answer is:\[ \$27,000 \text{ increase} \]#### Conclusion:The analysis shows that eliminating the windows division will result in an increase of $27,000 in Gion Company's operating income.

Operating income is the income earned through day-to-day business operations. Further, a business…

Gion Company is considering eliminating its windows division, which reported an operating loss for the recent year of $125,000. Division sales for the year were $1,310,000 and its variable costs were $1,175,000. The fixed costs of the division were $270,000. If the windows division is dropped, 60% of the fixed costs allocated to it could be eliminated. The impact on Gion's operating income from eliminating this business segment would be: Multiple Choice $56,700 decrease $27,000 increase $162,000 decrease $162,000 increase $27,000 decrease

Gion Company is considering eliminating its windows division, which reported an operating loss for the recent year of $125,000. Division sales for the year were $1,310,000 and its variable costs were $1,175,000. The fixed costs of the division were $270,000. If the windows division is dropped, 60% of the fixed costs allocated to it could be eliminated. The impact on Gion's operating income from eliminating this business segment would be: Multiple Choice $56,700 decrease $27,000 increase $162,000 decrease $162,000 increase $27,000 decrease

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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Subject: accounting
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