Ainsley Corporation has four operating divisions. The budgeted revenues and expenses for each division for 2020 follows: B (Click to view the results of each division.) Closing down any division would result in savings of 60% of the fixed costs of that division. Top management is very concerned about the unprofitable divisions (A and B) and is considering closing Requirement 1. Calculate the increase or decrease in operating income if Ainsley closes division A. Begin by calculating Division A's contribution margin. Division A Sales Data table Contribution margin L Division Now, calculate the fixed costs that will be saved by closing division A. A = c D Fixed costs Division A Sales $ 490,000 $ 490,000 930,000 $ 760,000 Fixed cost of goods sold Cost of goods sold 430,000 375,000 580,000 470,000 Fixed selling, general, and administrative . . B expenses 99 Selling, general, and administrative expenses 140,000 160,000 260,000 205,000 Total fixed costs Operating income/loss w m W w Fixed costs saved by shutting down division _ Further analysis of costs reveals the following percentages of variable costs in each division: Would operating income increase or decrease? . Dwvision A B c D By how much? Cost of goods sold 94% 88% 92% 80% Does Division A's contribution margin cover its avoidable fixed costs? Selling, general, and administrative expenses 56% 75% 67% 60% Requirement 2. Calculate the increase or decrease in operating income if Ainsley closes division B. Begin by calculating division B's contribution margin. Division B Sales Contribution margin Now, calculate the fixed costs that will be saved by closing division B. Fixed Costs Division B Fixed cost of goods sold Fixed selling, general, and administrative expenses Total fixed costs LI Fixed costs saved by shutting down division Would operating income increase or decrease? By how much? Does Division B's contribution margin cover its avoidable fixed costs? Requirement 3. What other factors should the top management of Ainsley consider before making a decision? () A. Management should consider the impact on the morale of the remaining employees if the division(s) are closed. () B. Management should consider the role that the divisions' product line plays relative to other product lines. () . Both of the above. () D. Neither of the above, management should make this decision relying only on financial data