Ainsley Corporation has four operating divisions. The budgeted revenues and expenses for each division for 2014 follow:

Further analysis of costs reveals the following percentages of variable costs in each division:

Closing down any division would result in savings of 40% of the fixed costs of that division. Top management is very concerned about the unprofitable divisions (A and B) and is considering closing them for the year.

Required
1. Calculate the increase or decrease in operating income if Ainsley closes division A.
2. Calculate the increase or decrease in operating income if Ainsley closes division B.
3. What other factors should the top management of Ainsley consider before making adecision?

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Division Sales Cost of goods sold Selling, general, and administrative expenses 96,000 202500 44,000 210,000 Operating income/loss $504,000 948,000 $960,000 $1,240,000 40,000 930,000765,000 95,000 $(32,000S184500 1,000105,000 Cost of goods sold Selling, general, and administrative expenses 90% 50% 80% 50% 90% 60% 85% 60%