Divisions Cars SUV Sales $1,000,000 $640,000 Trucks $360,000 Total $2,000,000 Variable costs 676,000 332,000 140,600 1,148,600...

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Divisions Cars SUV Sales $1,000,000 $640,000 Trucks $360,000 Total $2,000,000 Variable costs 676,000 332,000 140,600 1,148,600 Contribution margin 324,000 308,000 219,400 851,400 Fixed costs: Advertising Depreciation 89,000 70,000 69,000 228,000 24,000 30,000 18,000 72,000 Employee benefits 3,600 3,200 3,000 9,800 Insurance 4,600 8,000 3,200 15,800 Maintenance expense 54,000 54,000 54,000 162,000 Office expenses 36,000 36,000 36,000 108,000 Rent 32,000 24,000 20,000 76,000 Utilities 5,200 4,000 3,200 12,400 Wages 36,000 32,000 30,000 98,000 284,400 261,200 236,400 782,000 Operating income (loss) $ 39,600 $ 46,800 $ (17,000) $ 69,400 Other information: 30% of the allocated advertising expense is directly related to the sales dollars in the truck division. Rent is allocated based on space occupied on the car lot. Rent is a fixed annual rate based on space used. Employee benefits are based on wages paid for each division at 10% of wages. If the truck division is eliminated, utilities will reduce by $1,400 per month. One of the long-term sales managers will be transferred to another division if the truck division is eliminated. The salary for this position is $2,000 per month. This transfer will allow the other division to avoid hiring a new sales manager at a cost of $1,600 per month. The insurance cost for the truck division includes 60% related to inventory on hand that would no longer be incurred if the division were closed. If the truck division were eliminated, office expenses would remain the same but the company could eliminate one maintenance employee with a salary of $1,600 per month plus benefits at 10%. The maintenance employee's salary is part of maintenance expense, and is not included in wages. If the truck division is eliminated, Clarence expects car sales to increase by 10% and SUV sales to decrease by 5%. Clarence can sublease the space occupied by the truck division for $60,000 per month. Required: Should the truck division be dropped? Divisions Cars SUV Sales $1,000,000 $640,000 Trucks $360,000 Total $2,000,000 Variable costs 676,000 332,000 140,600 1,148,600 Contribution margin 324,000 308,000 219,400 851,400 Fixed costs: Advertising Depreciation 89,000 70,000 69,000 228,000 24,000 30,000 18,000 72,000 Employee benefits 3,600 3,200 3,000 9,800 Insurance 4,600 8,000 3,200 15,800 Maintenance expense 54,000 54,000 54,000 162,000 Office expenses 36,000 36,000 36,000 108,000 Rent 32,000 24,000 20,000 76,000 Utilities 5,200 4,000 3,200 12,400 Wages 36,000 32,000 30,000 98,000 284,400 261,200 236,400 782,000 Operating income (loss) $ 39,600 $ 46,800 $ (17,000) $ 69,400 Other information: 30% of the allocated advertising expense is directly related to the sales dollars in the truck division. Rent is allocated based on space occupied on the car lot. Rent is a fixed annual rate based on space used. Employee benefits are based on wages paid for each division at 10% of wages. If the truck division is eliminated, utilities will reduce by $1,400 per month. One of the long-term sales managers will be transferred to another division if the truck division is eliminated. The salary for this position is $2,000 per month. This transfer will allow the other division to avoid hiring a new sales manager at a cost of $1,600 per month. The insurance cost for the truck division includes 60% related to inventory on hand that would no longer be incurred if the division were closed. If the truck division were eliminated, office expenses would remain the same but the company could eliminate one maintenance employee with a salary of $1,600 per month plus benefits at 10%. The maintenance employee's salary is part of maintenance expense, and is not included in wages. If the truck division is eliminated, Clarence expects car sales to increase by 10% and SUV sales to decrease by 5%. Clarence can sublease the space occupied by the truck division for $60,000 per month. Required: Should the truck division be dropped?