The following information was taken from the segmented income statement of Restin, Inc., and the company's three divisions: In addition, the company incurred common ﬁxed costs of $18,000. Which of the following amounts should be used to evaluate whether Restin, Inc., should continue to invest company resources in the Los Angeles division?
A)$4,000.
B)$8,000.
C)$10,000.
D)$25,000.
E)$90,000.

Question

The following information was taken from the segmented income statement of Restin, Inc., and the company's three divisions:  In addition, the company incurred common ﬁxed costs of $18,000. Which of the following amounts should be used to evaluate whether Restin, Inc., should continue to invest company resources in the Los Angeles division?
A)$4,000. 
B)$8,000. 
C)$10,000. 
D)$25,000. 
E)$90,000.

Quizplus · Accepted Answer

To evaluate whether Restin, Inc., should continue to invest in the Los Angeles division, we need to look at the segment margin of that division. The segment margin is calculated by taking the segment's revenue minus its direct expenses. In this case, the Los Angeles division's segment margin is $10,000 ($40,000 revenue minus $30,000 direct expenses). Since we are only concerned with the Los Angeles division, we can ignore the other division's information and the common fixed costs.

The Following Information Was Taken from the Segmented Income Statement