Question
Kalamazoo Paper Company has three divisions: Recycling, Cardboard, and Paper. In order to determine the profit provided by each division, the company allocates all costs
Kalamazoo Paper Company has three divisions: Recycling, Cardboard, and Paper. In order to determine the profit provided by each division, the company allocates all costs to the three divisions. As a result, for the year ended December 31, 2015, Kalamazoo reported a profit of $50,000 for Recycling, a profit of $60,000 for Paper, and a loss of $30,000 for Cardboard. If Cardboard has avoidable costs of $40,000 and unavoidable costs of $50,000 which of the following actions should be taken by the company? Select one:
a. Eliminate the Cardboard Division because the division's unavoidable costs exceed the amount of the loss.
b. Continue the Cardboard Division because the revenue generated by the division exceeds the avoidable costs.
c. Continue the Cardboard Division because the revenue generated by the division exceeds the unavoidable costs.
d. Eliminate the Cardboard Division because the company's total net income would increase by $30,000.
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