The answer is D.
Contribution Margin 700k-420k = 280k will be lost income
Commission and Salaries will be avoided = 14k + 32k (expense will decrease)
Net impact to the company is ($234K)
------------------------------
Billy
------------------------------
Original Message:
Sent: 10-03-2022 01:52 AM
From: TIMUCIN ONER
Subject: PART 2 KEEP OR DROP DECISION
Dear CMA Friends,
I need you help in this.
Regards
A retail company has three segments with total operating income of $500,000. Selected financial information for Segment 1 is presented below: | | Unit sales | 28,000 | Sales revenue | $700,000 | Cost of sales | 420,000 | Administrative expenses | 144,000 | Commissions | 14,000 | Rent | 140,000 | Salaries | 32,000 |
- Administrative expenses are allocated to the three segments equally.
- Commissions are paid to the salespersons in each segment based on 2% of gross sales.
- The company rents the entire building and allocates the rent to the three segments based on the square footage occupied by each.
- Salaries represent payments to the employees in the segment.
The controller has expressed concern about the operating loss for Segment 1 and has suggested that it be closed. If the segment is closed, none of the employees would be retained. Should the company drop Segment 1? |
| | | | | | | | |
|
------------------------------
TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
------------------------------