The operations of Hart Corporation are divided into the Will Division and the Aloy Division. Projections for the next year are as follows:
|Sales||Will Division||Aloy Division||Total|
|Less: Variable costs||$560,000||$336,000||$896,000|
|Less: Directed fixed costs||$364,000||$182,000||$546,000|
|Less: Allocated common cost||$196,000||$42,000||$238,000|
|Operating income (loss)||84,000||63,000||147,000|
The firm is considering dropping the Aloy line. If so, the allocated common costs will, as a whole, remain and be reallocated to the Will division.
If this occurs, operating income for Hart Corporation, as a whole, if the Aloy Division were dropped would be what?
operating income is a financial term which indicates the net earning of business.The formula for calculation of net operating income is( sales- variable cost - fixed cost-allocated cost)
Answer and Explanation:
|Income Statement for Hart Corporation|
|Less: Variable Cost||196,000|
|Less: Directed fixed Cost||168,000|
|Less:Allocated cost (total)||147,000|
Therefore, if Aloy Division is dropped then the operating income will be reduced to $49,000 that is., reduced by $42,000. So, Aloy Division shouldn't be dropped as it leads to drop in income also.
Become a member and unlock all Study Answers
Try it risk-free for 30 daysTry it risk-free
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
from Accounting 101: Financial AccountingChapter 8 / Lesson 5