Kerston Company divides its operations into six divisions. A recent income statement for the Southwood Division follows:
Income Statement
Revenue.................................................$ 400,000
Salaries for employees.................................(200,000)
Operating expenses....................................(137,500)
Insurance................................................. (22,500)
Division-level facility-sustaining costs...............(45,000)
Companywide facility-sustaining costs...............(37,000)
Net loss.................................................$ (42,000)
Required
a. Should Kerston eliminate the Southwood Division? 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 companywide income increase or decrease?
b. Assume that the Southwood Division could increase its revenue to $430,000 by raising prices. Would this change the decision you made in response to Requirement a? Assuming Kerston's revenue becomes $430,000, determine the amount of the increase or decrease that would occur in companywide net income if the segment were eliminated.
c. What is the minimum amount of revenue the Southwood Division must generate to justify its continued operation?