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 $7,200,000 $3,600,000 $10,800,000 Variable costs (4,740,000) (2,088,000) (6,828,000) Contribution margin $2,460,000 $1,512,000 $3,972,000 Direct fixed costs (800,000) (490,000) (1,290,000) Segment margin $1,660,000 $1,022,000 $2, 682,000 Corporate fixed costs (1,900,000) (890, 000) (2,790,000) Operating income (loss) S(240,000) $132,000 S (108,000) 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? S Answer b. Recast the income statements into a more meaningful format than the one given. Note: Use a negative sign for expenses and losses.

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 $7,200,000 $3,600,000 $10,800,000 Variable costs (4,740,000) (2,088,000) (6,828,000) Contribution margin $2,460,000 $1,512,000 $3,972,000 Direct fixed costs (800,000) (490,000) (1,290,000) Segment margin $1,660,000 $1,022,000 $2, 682,000 Corporate fixed costs (1,900,000) (890, 000) (2,790,000) Operating income (loss) S(240,000) $132,000 S (108,000) 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? S Answer b. Recast the income statements into a more meaningful format than the one given. Note: Use a negative sign for expenses and losses.

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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