Problem: Module 6 Textbook Problem 8

Learning Objective: 6-4 Make appropriate segment elimination decisions

Munoz Transport Company divides its operations into four divisions. A recent income statement for its West Division follows.

MUNOZ TRANSPORT COMPANY
West Division
Income Statement for Year 3
Revenue	$	600,000
Salaries for drivers		(450,000	)
Fuel expenses		(60,000	)
Insurance		(80,000	)
Division-level facility-sustaining costs		(50,000	)
Companywide facility-sustaining costs		(140,000	)
Net loss	$	(180,000	)

Required

1. By how much would companywide income increase or decrease if West Division is eliminated? Should West Division be eliminated?

2. Assume that West Division is able to increase its revenue to $670,000 by raising its prices. Determine the amount of the increase or decrease that would occur in companywide net income if the segment were eliminated. Should West Division be eliminated if revenue were $670,000?

3. What is the minimum amount of revenue required to justify continuing the operation of West Division?