PLEASE SHOW ALL WORKING.

Question 1:

The following information has been extracted from the books of the ABC company which has two operating divisions.

	Battery Division	Tyre Division
Sales Revenue	1,664,200	96,200
Cost of Goods sold	978,520	76,470
	----------------	----------------
Contribution Margin	685,980	19,730
Operating Expenses	527,940	43,600
	--------------	-------------
Net Income / (Deficit)	157,740	(23,870)
	---------------	---------------

Additionally. it has been determined that in the Tyre Division, the cost of Goods Sold is made up of $ 70,000 in variable costs and $ 6,470 in Fixed costs.

Similarly, the Operating Cost is made up of $ 15,000 of Variable Costs and $ 28,600 of Fixed costs.

The companys accountant has recommended that the Tyre division be closed as it is making a loss.

None of the Fixed costs will be saved if the Tyre Division is closed.

Required:

1. Prepare an Incremental analysis to assist Management in making a decision. 10 Marks
2. Should the company follow the accountants recommendation? 5 Marks