Question
Brunson Corp. has seven divisions, five of which are running profitably. Divisions 1 and 2 are running at a loss, and Brunson's management is considering
Brunson Corp. has seven divisions, five of which are running profitably. Divisions 1 and 2 are running at a loss, and Brunson's management is considering closing one or both of them. Relevant data for both divisions is as follows:
Division 1 | Division 2 | |
Sales revenue | $704,900 | $803,900 |
Variable costs | 267,800 | 334,200 |
Fixed costs | 595,500 | 636,500 |
Avoidable fixed costs | 65% | 69% |
Avoidable fixed costs represents the percentage of each division's fixed costs that are specific to that division, and will no longer be incurred if the division is eliminated. All other fixed costs are allocated fixed costs that will be borne by the remaining divisions if any divisions are closed.
What should Brunson's management do?
Enter 1 if Division 1 should be closed.
Enter 2 if Division 2 should be closed.
Enter 3 if both divisions should be closed.
Enter 4 if neither division should be closed.
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