Question
The Kelsh Company has two divisions--North and South. The divisions have the following revenues and expenses: North South Sales $900,000 $800,000 Variable expenses 450,000 300,000
The Kelsh Company has two divisions--North and South. The divisions have the following revenues and expenses: North South Sales $900,000 $800,000 Variable expenses 450,000 300,000 Traceable fixed expenses 260,000 210,000 Allocated common corporate expenses 240,000 190,000 Net operating income (loss) ($50,000) $100,000 Management at Kelsh is pondering the elimination of the North Division. If the North Division were eliminated, its traceable fixed expenses could be avoided. The total common corporate expenses would be unaffected. Given this data, you will advise:
A. To eliminate North division, as the company profitability will immediately improve by $50,000.
B. To keep North division, as its elimination will turn the company from profitable to unprofitable.
C. To keep North division, as its elimination will be too complicated and will bring just a little improvement in companys profitability.
D. To eliminate North division, as the company profitability will improve by $260,000.
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