Acme Corp. has three divisions, X, Y, and Z. Division Xs income statement shows the following for the year ended December 31:

Sales $3,000,000

Cost of Goods Sold (1,800,000)

Gross Profit 1,200,000

Selling Expenses $350,000

Administrative Expenses 975,000 (1,325,000

Net loss $(125,000)

Cost of goods sold is 65% variable and 35% fixed. Of the fixed costs, 70% are avoidable if the division is closed. All of the selling expenses relate to the division and would be eliminated if Division X were eliminated. Of the administrative expenses, 75% are applied from corporate costs.

1. Should Acme close Division X or keep it?

2. What would be the increase or decrease in Acmes net income if it closes Division X?