The president of Ravens Inc. 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: Division Total Company A B C Sales $ 472,000 $ 184,000 $ 124,000 $ 164,000 Variable expenses 262,000 108,000 66,000 88,000 Contribution margin $ 210,000 $ 76,000 $ 58,000 $ 76,000 Fixed expenses 166,000 52,000 66,000 48,000 Net income (loss) $ 44,000 $ 24,000 $ (8,000 ) $ 28,000 The president was told that the fixed expenses of $166,000 included $91,500 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 B is a drag on the whole company. Close it down!"

Required: a. Evaluate the president's remark. The president's remark ignores the misleading result of arbitrarily allocated fixed expenses. The president's remark ignores the misleading result of arbitrarily allocated variable expenses.

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

c. What is the policy statement related to the allocation of fixed expenses. Never arbitrarily allocate fixed expenses. Never arbitrarily allocate variable expenses.