KLM has four operating divisions. The budgeted revenues and expenses for each division for 2021 follows:

Division

A

B

C

D

Sales

$630,000

$632,000

$960,000

$1,240,000

Cost of goods sold

550,000

620,000

765,000

925,000

Selling, general, and administrative expenses

120,000

135,000

144,000

210,000

Operating income/loss

$(40,000)

$(123,000)

$51,000

$105,000

Further analysis of costs reveals the following percentages of variable costs in each division:

Cost of goods sold

90%

80%

90%

85%

Selling, general, and

administrative expenses

50%

50%

60%

60%

Closing down any division would result in savings of 40% of the fixed costs of that division. Top management is very concerned about the unprofitable divisions (A and B) and is considering closing them for the year.

Required:

1-Calculate the increase or decrease in operating income if KLM closes division A.

2-Calculate the increase or decrease in operating income if KLM closes division B.