Question
Leia plc is assessing the financial impact of shutting down one of its loss making divisions. The divisional P&L, together with notes on the relevance
Leia plc is assessing the financial impact of shutting down one of its loss making divisions. The divisional P&L, together with notes on the relevance of each cost item, is presented below:
Sales | 100,000 | |
Variable costs | (40,000) | |
Contribution | 60,000 | |
Staff salaries | (30,000) | Half the staff could be made redundant. The remainder would be reallocated to different divisions across the business. Redundancy costs can be ignored |
Depreciation on assets | (18,000) | |
Marketing services | (20,000) | Allocated from head office. If the division were closed, the marketing team could be redeployed onto a new project earning 10,000 contribution per year |
Profit | (8,000) |
What would be the total relevant COST to Leia of shutting down the division
a. | 8,000 | |
b. | 35,000 | |
c. | 15,000 | |
d. | 60,000 |
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