The president of Eaglesway Incorporated attended a seminar about the contribution margin model and returned to her company full of enthusiasm about it. She requested that last years traditional model income statement be revised, and she received the following report:

	Total Company	Division
X	Y	Z
Sales	$ 508,000	$ 196,000	$ 136,000	$ 176,000
Variable expenses	272,000	110,000	68,000	94,000
Contribution margin	$ 236,000	$ 86,000	$ 68,000	$ 82,000
Fixed expenses	184,000	58,000	72,000	54,000
Net income (loss)	$ 52,000	$ 28,000	$ (4,000)	$ 28,000

The president was told that the fixed expenses of $184,000 included $100,500 that had been split evenly between divisions because they were general corporate expenses. After looking at the statement, the president exclaimed, "I knew it! Division Y is a drag on the whole company. Close it down!"

Required:

1. Evaluate the president's remark.
2. Calculate what the company's net income would be if Division Y were closed down.
3. What is the policy statement related to the allocation of fixed expenses?