Aristide Corporation has four operating divisions. The budgeted revenues and expenses for each division for $2020$ follows:

$($Click to view the results of each division.$)$

Closing down any division would result in savings of $7086$ 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.

Read the requirements.

Requirement $1.$ Calculate the increase or decrease in operating income if Aristide closes division A$.$

Begin by calculating Division A$\text{'}$s contribution margin.

Division A

Sales

Contribution margin

Now, calculate the fixed costs that will be saved by closing division $A.$

Fixed costs

Division A

Fixed cost of goods sold

Fixed selling, general, and administrative

expenses

Total fixed costs

Fixed costs saved by shutting down division

Would operating income increase or decrease?

By how much?

Does Division A$\text{'}$s contribution margin cover its

avoidable fixed costs? Requirement $2.$ Calculate the increase or decrease in operating income if Aristide closes division B$.$

Begin by calculating division B$\text{'}$s contribution margin.

Division B

Colno

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

Fixed costs saved by shutting down division

Would operating income increase or

decrease?

By how much? Does Division B$\text{'}$s contribution margin

cover its avoidable fixed costs?

Requirement $3.$ What other factors should the top management of Aristide consider before making a decision?

A$.$ Management should consider the role that the divisions' product line plays relative to other product lines.

B$.$ Management should consider the impact on the morale of the remaining employees if the division$($s$)$ are closed.

C$.$ Both of the above.

D$.$ Neither of the above, management should make this decision relying only on financial data.Data table

Requirements

Calculate the increase or decrease in operating income if Aristide closes

division $A.$

Calculate the increase or decrease in operating income if Aristide closes

division $B.$

What other factors should the top management of Aristide consider before

making a decision?