Company A has 2 divisions - north and south and their data is as follows: North South Sales 900,000 800,000 Variable expenses 450,000 300,000 Traceable Fixed Expenses 260,000 210,000 Allocated common expenses 240,000 190,000 Net operating income (loss) (50,000) 100,000 Should management shut down the north division? Calculate the net operating income if the north division is eliminated

Should management shut down the north division?

North
Sales                                  900,000
Variable expenses                 450,000
Traceable Fixed Expenses       260,000
Net operating income (loss)     190,000

Since, the North division is showing a profit of 190,000 if we do not take into consideration the allocated common expenses, the north division should not be shut

Calculate the net operating income if the north division is eliminated.

South
Sales                                  800,000
Variable expenses                 300,000
Traceable Fixed Expenses       210,000
Allocated common expenses   430,000 =240000+190000
Net operating income (loss)     (140,000)

(Note, since there is no North division, allocated common expenses are now borne entirely by the South division)

There is now a loss of (140,000)