Question
Exercise 6-15A (Algo) Segment elimination decision LO 6-4 Thornton Transport Company divides its operations into four divisions. A recent income statement for its West Division
Exercise 6-15A (Algo) Segment elimination decision LO 6-4
Thornton Transport Company divides its operations into four divisions. A recent income statement for its West Division follows.
| THORNTON TRANSPORT COMPANY | |||
| West Division | |||
| Income Statement for Year 3 | |||
| Revenue | $ | 660,000 | |
| Salaries for drivers | (510,000 | ) | |
| Fuel expenses | (66,000 | ) | |
| Insurance | (86,000 | ) | |
| Division-level facility-sustaining costs | (56,000 | ) | |
| Companywide facility-sustaining costs | (146,000 | ) | |
| Net loss | $ | (204,000 | ) |
Required Answers:
By how much would companywide income increase or decrease if West Division is eliminated? Should West Division be eliminated?
Assume that West Division is able to increase its revenue to $750,000 by raising its prices. Determine the amount of the increase or decrease that would occur in companywide net income if the segment were eliminated. Should West Division be eliminated if revenue were $750,000?
What is the minimum amount of revenue required to justify continuing the operation of West Division?
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