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                                                          $                      $                  $                   $

Variable expenses                                    

Contribution margin                             $                         $                     $                    $

Fixed expenses                                        

Net income loss $                            $                   $                     $

The president was told that the fixed expenses of $ included $ 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:

Evaluate the president\'s remark.

Calculate what the company\'s net income would be if Division Y were closed down.

What is the policy statement related to the allocation of fixed expenses?