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Barrows is operating in three markets - Vietnam, the Philippines and Indonesia. Below are the profit statements of each of the three divisions: The Current
Barrows is operating in three markets - Vietnam, the Philippines and Indonesia. Below are the profit statements of each of the three divisions: The Current Total $300,000 Philippines $90,000 27,000 Indonesia $150,000 Vietnam $60,000 33,000 27,000 120,000 60,000 180,000 63,000 90,000 30,000 10,000 14,000 6,000 Sales Variable expenses (product cost and selling cost).. Contribution margin........... Fixed expenses: Advertising, traceable.... Depreciation on equipment........ Salaries of product managers ..... Common allocated costs*...... Total fixed expenses ........ Operating income ........... 8,000 23,000 35,000 60,000 148,000 $ 32,000 6,000 12,000 18,000 46,000 $17,000 9,000 13,000 | 30,000 66,000 $ 24,000 10,000 12,000 36,000 $ (9,000) * Headquarters cost such as corporate accounting, HR and CEO salary. Allocated on the basis of sales dollars. ** The equipment has not resale value. Barrows management needs to decide whether to divest the Vietnam division, which is incurring a net operating loss. 2. Will operating income increase if Barrows divests the Vietnam division, and by how much? Show your calculations
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