=+8-39 KK Closing down divisions OBJECTIVES 2, 6 Astrid Ltd has four operating divisions. The budgeted revenues and expenses for each division for 2014 follow:

Division A B C D Sales $630 000 $632 000 $960 000 $1 240 000 Cost of goods sold 550 000 620 000 765 000 925 000 Selling, general and administrative expenses 120 000 135 000 144 000 210 000 Operating profit/loss $(40 000) $(123 000) $51 000 $105 000 Further analysis of costs reveals the following percentages of variable costs in each division:

Cost of goods sold 90% 80% 90% 85%

Selling, general and administrative expenses 50% 50% 60% 60%

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 shutting them down.

Required 1 Calculate the increase or decrease in operating profit if Astrid closes division A.