Question
Company has three departments. Data for the most recent year is presented below: Dept. C Dept. A Dept. T Sales $4,000 $1,920 $2,240 Variable expenses
Company has three departments. Data for the most recent year is presented below: Dept. C Dept. A Dept. T Sales $4,000 $1,920 $2,240 Variable expenses 3,280 1,420 520 Unavoidable fixed expenses 480 180 440 Avoidable fixed expenses 555 265 360 Operating income (loss) $(315) $55 $920 Olson Company is considering eliminating Dept. C because it is operating at a loss. Required: A) Compute the change in operating income if Olson Company eliminates Dept. C and does not replace it. B) Compute the change in operating income if Olson Company eliminates Dept. C and doubles the sales of Dept. T without increasing fixed costs.
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