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Category > Accounting Posted 23 Jul 2017 My Price 12.00

Operations of Borderland Oil Drilling Services

(Product line) Operations of Borderland Oil Drilling Services are separated into two geographical divisions: United States and Mexico. The operating results of each division for 2010 are as follows:

 

United States

Mexico

Total

Sales

$7,200,000

$3,600,000

$10,800,000

Variable costs

(4,740,000)

(2,088,000)

(6,828,000)

Contribution margin

$2,460,000

$1,512,000

$ 3,972,000

Direct fixed costs

(800,000)

(490,000)

(1,290,000)

Segment margin

$1,660,000

$1,022,000

$ 2,682,000

Corporate fixed costs

(1,900,000)

(890,000)

(2,790,000)

Operating income (loss)

$ (240,000)

$ 132,000

$ (108,000)

Corporate fixed costs are allocated to the divisions based on relative sales. Assume that all of a division’s direct fixed costs could be avoided by eliminating that division. Because the U.S. division is operating at a loss, Borderland’s president is considering eliminating it.

a. If the U.S. division had been eliminated at the beginning of the year, what would have been Borderland’s pre-tax income?

b. Recast the income statements into a more meaningful format than the one given. Why would total corporate operating results change from the $108,000 loss to the results determined in part (a)?

Answers

Maurice Tutor
(5)
Status NEW Posted 23 Jul 2017 10:07 PM My Price 12.00

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