Question 3

A-The XYZ Corporation has two divisionsA and B. The divisions have the following revenues and expenses:

	A			B
Sales	$	500,000		$	550,000
Variable costs		200,000			275,000
Traceable fixed costs		150,000			180,000
Allocated common corporate costs		135,000			170,000
Net income (loss)	$	15,000		$	(75,000	)

The management of ABC is considering the elimination of Division B. If the Division B were eliminated, its traceable fixed costs could be avoided. Total common corporate costs would be unaffected by this decision.

Required:

1- Should the Company drop division B? Explain.Support you answer with the necessarycalculations.

2- Would your decision be changed if you know that all traceable fixed costs to division B could be avoided and 40% of total common corporate costs assigned to division B would beunaffected by this decision.