Carns Company is considering eliminating its small tools division,which reported an operating loss for the recent year of $85,000.Division sales for the year were $1,310,000 and its variable costs were $1,175,000.The fixed costs of the division were $220,000.If the kitchen division is dropped,45% of the fixed costs allocated it could be eliminated.The impact on Carns's operating income from eliminating the small tools division would be:
A)$74,200 decrease
B)$36,000 decrease
C)$220,000 decrease
D)$36,000 increase
E)$99,000 decrease

Question

Quizplus · Accepted Answer

If the division is eliminated, the company would save 45% of the fixed costs, which is $99,000 (0.45 * $220,000). The division's operating loss is $85,000. Eliminating the division would result in a net decrease in operating income of $36,000 ($85,000 loss - $99,000 fixed cost savings).

Carns Company Is Considering Eliminating Its Small Tools Division,which Reported