Question
Dalton Co. follows a policy of allocating all common costs equally among its profit centers. A partial responsibility income statement for a typical month is
Dalton Co. follows a policy of allocating all common costs equally among its profit centers. A partial responsibility income statement for a typical month is shown below:
Dalton Co. | Profit Center 1 | Profit Center 2 | Profit Center 3 | |||||||||
Responsibility margins | $ | 200,000 | $ | 80,000 | $ | 70,000 | $ | 50,000 | ||||
Common fixed costs | $ | 165,000 | $ | 55,000 | $ | 55,000 | $ | 55,000 | ||||
Income from operations | $ | 35,000 | $ | 25,000 | $ | 15,000 | $ | (5,000 | ) | |||
After evaluating these data, Dalton Co. decides to close Profit Center 3. This action eliminates all revenue, variable costs, and fixed costs traceable to Center 3, but eliminates only $35,000 in common fixed costs. Closing Profit Center 3 has no effect upon the responsibility margins of Centers 1 and 2.
Closing Profit Center 3 should cause Dalton's monthly operating income to:
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started