Question
The following is financial information from the two segments of ABC company. DATA: NOTE: Non-identifiable costs were allocated to the segments using the space they
The following is financial information from the two segments of ABC company.
DATA:
NOTE: Non-identifiable costs were allocated to the segments using the space they occupy.
Segment 1 | Segment 2 | Total | |
Sales | $758,295 | $379,148 | $1,137,443 |
Direct Costs (identifiable): | |||
Cost of Goods Sold | $120,000 | $151,659 | $1,636,590 |
Wages and Salaries | $190,000 | $113,744 | $303,744 |
Equipment Depreciation | $50,000 | $37,915 | $87,915 |
Indirect Costs (NOT-identifiable): | |||
Advertising | $1,500 | $3,500 | $5,000 |
Rent | $7,500 | $15,500 | $23,000 |
Maintenance | $3,000 | $7,000 | $10,000 |
Operating Profit | $386,295 | $49,830 | $436,125 |
NOTE: Non-identifiable costs were allocated to the segments using the space they occupy.
REQUIRED: The company owner believes that segment two should cease operations because it is not generating enough profit. However, the segment analysis indicates that it should NOT be eliminated. Indicate by how much the company's Operating Profit will decrease if segment 2 is eliminated.
Answer:
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