The following information has been extracted from the books of the ABC company which has two operating divisions. Battery Division Tyre Division Sales Revenue 1,664,200 978,520 96,200 76,470 Cost of Goods sold Contribution Margin Operating Expenses 685,980 527,940 19,730 43,600 Net Income / (Deficit) 157,740 (23,870) Additionally. it has been determined that in the Tyre Division, the cost of Goods Sold is made up of $ 70,000 in variable costs and $ 6,470 in Fixed costs. Similarly, the Operating Cost is made up of $ 15,000 of Variable Costs and $ 28,600 of Fixed costs. The company's accountant has recommended that the Tyre division be closed as it is making a loss.

The following information has been extracted from the books of the ABC company which has two operating divisions. Battery Division Tyre Division Sales Revenue 1,664,200 978,520 96,200 76,470 Cost of Goods sold Contribution Margin Operating Expenses 685,980 527,940 19,730 43,600 Net Income / (Deficit) 157,740 (23,870) Additionally. it has been determined that in the Tyre Division, the cost of Goods Sold is made up of $ 70,000 in variable costs and $ 6,470 in Fixed costs. Similarly, the Operating Cost is made up of $ 15,000 of Variable Costs and $ 28,600 of Fixed costs. The company's accountant has recommended that the Tyre division be closed as it is making a loss.

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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Question

Prepare an Incremental analysis to assist Management in making a decision.

Should the company follow the accountant’s recommendation.

The following information has been extracted from the books of the ABC company which has
two operating divisions.
Battery Division
Tyre Division
1,664,200
978,520
96,200
76,470
Sales Revenue
Cost of Goods sold
Contribution Margin
Operating Expenses
685,980
527,940
19,730
43,600
Net Income / (Deficit)
157,740
(23,870)
Additionally. it has been determined that in the Tyre Division, the cost of Goods Sold is made up
of $ 70,000 in variable costs and $ 6,470 in Fixed costs.
Similarly, the Operating Cost is made up of $ 15,000 of Variable Costs and $ 28,600 of Fixed
costs.
The company's accountant has recommended that the Tyre division be closed as it is making a
loss.
None of the Fixed costs will be saved if the Tyre Division is closed.

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