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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Acme Corp. has three divisions, X, Y, and Z. Division X’s income statement shows the following for the year ended December 31:
Sales $3,000,000
Cost of Goods Sold (1,800,000)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â
Gross Profit 1,200,000
Selling Expenses                                 $350,000
Administrative Expenses                    975,000 (1,325,000     Â
Net loss $(125,000)
Cost of goods sold is 65% variable and 35% fixed. Of the fixed costs, 70% are avoidable if the division is closed. All of the selling expenses relate to the division and would be eliminated if Division X were eliminated. Of the administrative expenses, 75% are applied from corporate costs.
1. Should Acme close Division X or keep it?
2. What would be the increase or decrease in Acme’s net income if it closes Division X?
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