The Cook Corporation has two divisions--East and West. The divisions have the following revenues and expenses: The management of Cook is considering the elimination of the West Division. If the West Division were eliminated, its traceable fixed costs could be avoided. Total common corporate costs would be unaffected by this decision. Given these data, the elimination of the West Division would result in an overall company net operating income (loss) of:
A) $15,000
B) ($155,000)
C) ($75,000)
D) ($60,000)

Question

The Cook Corporation has two divisions--East and West. The divisions have the following revenues and expenses:  The management of Cook is considering the elimination of the West Division. If the West Division were eliminated, its traceable fixed costs could be avoided. Total common corporate costs would be unaffected by this decision. Given these data, the elimination of the West Division would result in an overall company net operating income (loss) of:
A) $15,000 
B) ($155,000) 
C) ($75,000) 
D) ($60,000)

Quizplus · Accepted Answer

Effect on net operating income of dropping the West Division:
 11eacbfc_c632_65be_8ffe_d13f135b53f5_TB7552_00 The company currently has a net operating loss of $60,000-the combined effect of the apparent $75,000 loss in the West Division and the apparent $15,000 profit in the East Division. Dropping the West Division would reduce net operating income by $95,000. Therefore, after dropping the West Division, the overall company net operating loss would be $155,000 = (−$60,000 − $95,000).

The Cook Corporation Has Two Divisions--East and West