Primero 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 $7086$ 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.

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

Division A

Sales

Data table

Contribution margin

By how much?

Fixed cost of goods sold

Fixed selling, general, and administrative

expenses

Total fixed costs

Fixed costs saved by shutting down division

Would operating income increase or decrease?

Does Division A$\text{'}$s contribution margin cover its

avoidable fixed costs?

Requirement $2.$ Calculate the increase or decrease in operating income if Prir

Requirement $2.$ Calculate the increase or decrease in operating income if PrimeroPrimero closes division B$.$

Begin by calculating division$$ B$\text{'}$s contribution margin.

Division B

Sales

Contribution margin

Part $5$

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

Fixed Costs

Division B

Fixed cost of goods sold

Fixed selling, general, and administrative expenses

Total fixed costs

Fixed costs saved by shutting down division

Part $6$

Would operating income increase or decrease?

By how much?

Does Division B$\text{'}$s contribution margin cover its avoidable fixed costs?

Part $7$

Requirement $3.$ What other factors should the top management of PrimeroPrimero consider before making a$$ decision?

A$.$

Management should consider the impact on the morale of the remaining employees if the$$ division$($s$)$ are closed.

B$.$

Management should consider the role that the$$ divisions' product line plays relative to other product lines.

C$.$

Both of the above.

D$.$

Neither of the$$ above, management should make this decision relying only on financial data.

What other factors should the top management of Primero consider before making a decision?