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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.


Learn more about this topic:

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Operations of an Income Statement

from Accounting 101: Financial Accounting

Chapter 8 / Lesson 5
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