# The operations of Hart Corporation are divided into the Will Division and the Aloy Division....

## Question:

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 Contribution margin 196,000 154,000 350,000 Less: Directed fixed costs$364,000 $182,000$546,000
Segment margin 168,000 140,000 308,000
Less: Allocated common cost $196,000$42,000 $238,000 Operating income (loss) 84,000 63,000 147,000$112,000 $(21,000)$91,000

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

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
Sales 560,000
Less: Variable Cost 196,000
Contribution 364,000
Less: Directed fixed Cost 168,000
Margin 196,000
Less:Allocated cost (total) 147,000
Operating Income 49,000

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.