Kowalchuk Company By Division (000s) A B C Total Total Sales 300 400 500 1,200 Variable Costs 120 200 240 560 C.M. 180 200 260 640 Fixed Cost 160 185 292 637 Operating Income 20 15 (32) 3

The company allocates Fixed Cost partly by floor space and partly by sales. The company decides to drop losing Division C to make more money.

Much of the fixed cost is plant insurance, amortization, heating, equipment repairs, taxes, landscaping and will not be lost when Division C closes. The only fixed savings are as follows:

One supervisor from Div. C earning $70,000 will be terminated. Another supervisor from Div. C earning $60,000 will go to Division B and replace a supervisor earning $50,000 (who will be terminated). Fixed termination costs are $8,000 per supervisor.

Division A will increase Sales $100,000 as spill-over sales from the closure of Division C. However Division B will lose $50,000 Sales since the company is no longer a full service location.

How much will Operating Income change in the current year if Division C closes?

How much will the new total fixed costs be for the current year?