If the mountain bike division is dropped, all $870,000 of its variable costs are avoidable, and $62,700 of its fixed costs are avoidable. The impact on income for eliminating this business segment would be:
If the mountain bike division is dropped, all $870,000 of its variable costs are avoidable, and $62,700 of its fixed costs are avoidable. The impact on income for eliminating this business segment would be:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Soar Incorporated is considering eliminating its mountain bike division, which reported a loss for the recent year of $4,000 as shown below.
| Segment Income (Loss) | |
| Sales | $ 1,075,000 |
|---|---|
| Variable costs | 870,000 |
| Contribution margin | 205,000 |
| Fixed costs | 209,000 |
| Income (loss) | $ (4,000) |
If the mountain bike division is dropped, all $870,000 of its variable costs are avoidable, and $62,700 of its fixed costs are avoidable. The impact on income for eliminating this business segment would be:
Expert Solution
Step 1
SOLUTION:-
| Continue | Eliminate | Net income increase (decrease) | |
| Sales | 1,075,000 | 0 | -1,075,000 |
| Variable cost | -870,000 | 0 | 870,000 |
| Contribution margin | 205,000 | 0 | -205,000 |
| Fixed cost | -209,000 | -146300 | 62,700 |
| Net income | -4,000 | -146300 | -142,300 |
[OR]
SIMPLE WAY:-
| Net income increase (decrease) | |
| Sales | -1,075,000 |
| Variable cost | 870,000 |
| Contribution margin | -205,000 |
| Fixed cost | 62,700 |
| Net income | -142,300 |
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education