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Our company has two divisions evaluated as prot centers: Retail and Commercial. Operating results in the Retail division have worsened in recent year, and for
Our company has two divisions evaluated as prot centers: Retail and Commercial. Operating results in the Retail division have worsened in recent year, and for 2022 the division is expecting a significant loss. Divisional estimated income statements for 2022 are below: Retail Commercial Revenues 5 1,425,000 $4,560,000 Variable expenses 840,000 1,900,000 Contribution margin $585,000 $2,660,000 Fixed expenses 940,000 130,000 Net operating income (loss) ($355,000) $2,530,000 We are considering shutting down the Retail division. If the Retail division is shut down, we expect to continue to incur $485,000 of the divisional fixed expenses (these are corporatelevel xed expenses allocated to the division and are not avoidable). Also, if we shut down the Retail division, some of that division's customers are expected to switch their orders to our Commercial division: if we shut down Retail, we expect the Commercial division's sales to increase by 10%. What would be the effect on our company's 2022 net operating income (NOI) if we shut down the Retail division? (Provide both the dollar amount and whether NOI would increase or decrease.)
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