Part $2$ of $7$

Points: $0\mathrm{.}22$ of $1$

First Rate Corporation has four operating divisions. The budgeted revenues and expenses for each division for $2020$ follows: $($Click to view the results of each division.$)$

Closing down any division would result in savings of $6085$ 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.

Read the requirements.

Requirement $1.$ Calculate the increase or decrease in operating income if First Rate closes division A$.$

Begin by calculating Division A$\text{'}$s contribution margin.

$\backslash$table$[[,$Division A$],[,$$$550,000,],[$Sales$,447,200,],[$Variable cost of goods sold,$47,200,],[$Variable selling, general, administrative expenses,$$,55,{600}_{?},],[$Contribution margin,,$]]$

Now, calculate the fixed costs that will be saved by closing division $A.$

Fixed costs

Fixed cost of goods sold

Fixed selling, general, and administrative expenses

Total fixed costs

Fixed costs saved by shutting down division

Data table

$\backslash$table$[[,$Division$],[,$A$,$B$,C,$D$],[$Sales$,$$$,550,000$$$,440,000$$$,930,000$$$,720,000],[$Cost of goods sold,,$520,000,375,000,550,000,490,000],[$Selling$,$ general, and administrative expenses,,$80,000,100,000,230,000,185,000],[$Operating income$/$loss$,$$$,(50,000),$$$,(35,000{)}^{\text{\$}},150,000$$$,45,000],[$Further analysis of costs reveals the following percentages of variable costs in each division:$],[,,$Division,$],[,,,$A$,$B$,$D$,],[$Cost of goods sold,,,$86\%,90\%,80\%,],[$Selling$,$ general, and administrative e$,$ns$,,59\%,75\%,62\%,]]$