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In: Accounting

Bonita Division has the following data: Sales $495000 Variable expenses 235000 Fixed expenses 285000 The fixed...

Bonita Division has the following data:

Sales $495000
Variable expenses
235000
Fixed expenses 285000

The fixed costs are not avoidable and must be allocated to profitable divisions if the segment is eliminated. What will be the incremental effect on net income if Bonita Division is eliminated?

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Expert Solution

Bonita Division
Particulars Value %
Sales $       4,95,000
Less: Variable cost $       2,35,000
Contribution $       2,60,000 53%
Less: Fixed cost $       2,85,000
Margin or Net Profit $        (25,000) -5%
If fixed cost is not avoidable and it must be allocated to divisions, Net profit is negative comes by 5%. If Fixed cost is avoidable and not allocated to division, it's contribution comes by 53%. In this way it's contribution is good for business continuing.

ekkarill92 answered 2 years ago
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