Royal Company currently has two divisions: East Division and West Division. Given below are the operating results for last year. Since the West Division is incurring losses, the president of the company is considering the elimination of this division. All the fixed expenses for the division will be eliminated if the division is dropped. If the West Division is dropped, how much higher or lower will Royal Companys total net operating income be for the year?

a- It will be higher by $80,000.

b- It will be lower by $320,000.

c- It will be higher by $480,000.

d- It will be lower by $800,000.

e- None of the above.

23. Zoofari Company makes 12,000 units of part X99 each year. This part is used in one of the company's products. The company's accounting department reports the costs of producing the part at this level of activity, as shown in the below table. An outside supplier has offered to sell the part to the company for $26 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents the fixed costs of the entire company. If the outside supplier's offer is accepted, only $19,000 of these allocated general overhead costs will be avoided. In addition, the space used to produce the part X99 will be used to make more of one of the company's other products, generating an additional segment margin of $13,000 per year for that product. What will be the impact on the company's overall net operating income of buying part X99 from the outside supplier? *

a- The overall net operating income will increase by $8,000 per year.

b- The overall net operating income will increase by $13,000 per year.

c- The overall net operating income will decrease by $5,000 per year.

d- The overall net operating income will decrease by $13,000 per year.

e- None of the above.

24. Oxon Company has received a request for a special order of 6,000 units of product J200 for $13.70 each. The product J200's unit product cost is $11.50, as shown in the below table. Direct labor is a variable cost. The special order will have no effect on the company's total fixed manufacturing overhead costs. The customer wants some modifications to be made to the product J200, which will increase the variable costs by $8.10 per unit and will also require an investment of $20,000 in special molds that will have no salvage value. This special order will have no effect on the company's other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, what is the effect on the company's overall net operating income?

a- The overall net operating income will increase by $13,200.

b- The overall net operating income will decrease by $21,300.

c- The overall net operating income will decrease by $26,600.

d- The overall net operating income will decrease by $55,400.

e- None of the above.

West Division Sales Variable Expenses Contribution Margin Fixed Expenses for the Division Segment Margin Allocated Corporate Fixed Expenses Net Operating Income (Loss) East Division $4,800,000 2,480,000 2,320,000 880,000 1,440,000 800,000 $640,000 $2,400,000 1,600,000 800,000 480,000 320,000 400,000 $(80,000) Item: Direct Materials Direct Labor Variable Manufacturing Overhead Supervisor's Salary Depreciation of Special Equipment Allocated General Overhead Amount $9 per unit $6 per unit $5 per unit $4 per unit $2 per unit $7 per unit Item: Direct Materials Direct Labor Variable Manufacturing Overhead Fixed Manufacturing Overhead Unit Product Cost Amount $2.50 per unit 1.90 per unit 2.30 per unit 4.80 per unit $11.50 per unit