In: Accounting
Power Inc. has two divisions, Windsor and Ridge. Following is
the income statement for the past month:
Windsor | Ridge | Total | |||||||
Sales | $ | 360,000 | $ | 320,000 | $ | 680,000 | |||
Variable Costs | 280,000 | 150,000 | $ | 430,000 | |||||
Contribution Margin | $ | 80,000 | $ | 170,000 | $ | 250,000 | |||
Fixed Costs (allocated) | 122,000 | 128,000 | $ | 250,000 | |||||
Profit Margin | $ | (42,000 | ) | $ | 42,000 | $ | 0 | ||
What would the impact on operating income be if Power Inc.
discontinued the Windsor Division and could save $24,000 in
allocated fixed costs?
Net loss will increase by $56,000
Or
We can say Net income will decrease by $56,000
Working
After Discontinue of Windsor | |||
Windsor | Ridge | Total | |
Sales | $ 320,000.00 | $ 320,000.00 | |
Variable Costs | $ 150,000.00 | $ 150,000.00 | |
Contribution Margin | $ - | $ 170,000.00 | $ 170,000.00 |
Fixed Costs (allocated) | $ 98,000.00 | $ 128,000.00 | $ 226,000.00 |
Profit Margin | $ (98,000.00) | $ 42,000.00 | $ (56,000.00) |
.
Income before discontinuing Windsor | $ - |
Income After discontinuing Windsor | $ (56,000.00) |
Decrease in income | $ (56,000.00) |