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Kentucky Distributors has two divisions Northern and Southern. The divisions have provided the ...
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Kentucky Distributors has two divisions Northern and Southern. The divisions have provided the ...
Kentucky Distributors has two divisions — Northern and Southern. The divisions have provided the following financial information:
Northern
Southern
Sales
$150,000
$210,000
Variable costs
95,000
110,000
Common fixed costs
65,000
75,000
Operating income
($ 10,000)
$ 25,000
Kentucky's executives are considering the elimination of the Northern division. If the division is eliminated, the common fixed costs will remain unchanged. Given these data, should the Northern division be eliminated? Why?
Textbook
Managerial Accounting
Edition:
4
th
Author:
Davis
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Without
Northern
Southern
Total
Northern
Sales
$150,000
$210,000
$360,000
$210,000
Variable costs
95,000
110,000
205,000
110,000
Contribution margin
55,000
100,000
155,000
100,000
Common fixed costs
65,000
75,000
140,000
140,000
Operating income
($ 10,000)
$ 25,000
$ 15,000
($ 40,000)
Kentucky should not eliminate the Northern division. It has a positive contribution, and if it is eliminated, the Southern division would have the burden of $65,000 additional common fixed costs. This would create lower income for the Southern division and the company.
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Thanks for your help!!
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this is exactly what I needed
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