Moreno Transport Company divides its operations into four divisions. A recent income statement for Hess Division follows.

Required:

a. Should Hess Division be eliminated? Support your answer by explaining how the division’s elimination would affect the net income of the company as a whole. By how much would company wide income increase or decrease?

b. Assume that Hess Division is able to increase its revenue to \($700,000\) by raising its prices. Would this change the decision you made in Requirement a.? Determine the amount of the increase or decrease that would occur in companywide net income if the segment were eliminated if revenue were \($700,000\) .

c. What is the minimum amount of revenue required to justify continuing the operation of Hess Division?

Transcribed Image Text:

MORENO TRANSPORT COMPANY Hess Division Income Statement for the Year 2005 Revenue $650,000 Salaries for Drivers (420,000) Fuel Expenses (80,000) Insurance (110,000) Division-Level Facility-Sustaining Costs (60,000) Companywide Facility-Sustaining Costs Net Loss (130,000) $(150,000)