Lawler Manufacturing Co. has three divisions which are in competition with each

other, selling slightly different products. Annual results (including per unit sales)

show:

Division A Division B Division C

Sales price per unit $250 $280 $330

Variable cost per unit $160 $210 $220

Total Fixed costs $110,000 $85,000 $105,000

Predicted unit sales 10,000 5,000 3,000

The company believes that if it drops Division B, sales of Division A will increase by

3000 units and sales of Division C will increase by 1000 units. Analysis reveals that $50,000

of fixed costs relating to Division B are avoidable for the company if Division B is closed.

The incremental effect on the income of the company if it closes Division B will be:

A. An increase of $30,000

B. An increase of $50,000

C. A decrease of $70,000

D. An increase of $80,000