Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 25

Jamison Health Care is trying to decide if it should eliminate its orthopedic care division. In the last year, the orthopedic division had a contribution margin of $100,000 and allocated overhead costs of $200,000, of which $90,000 could be eliminated if the division is dropped. Should Jamison keep the division?

Step 1 of 3

Decision of either to keep or drop a division:

The decision of either to keep or drop the division is determined based on incremental contribution if any arising by keeping the division. If the incremental contribution is positive, then the division should be kept or else it should be dropped.