Vanik Corporation currently has two divisions which had the following operating results for last year: Because the Rubber Division sustained a loss, the president of Vanik is considering the elimination of this division. All of the division's traceable fixed costs could be avoided if the division was dropped. None of the allocated common corporate fixed costs could be avoided. If the Rubber Division was dropped at the beginning of last year, the financial advantage (disadvantage) to the company for the year would have been:
A) ($20,000)
B) $20,000
C) $25,000
D) ($25,000)

Question

Vanik Corporation currently has two divisions which had the following operating results for last year:  Because the Rubber Division sustained a loss, the president of Vanik is considering the elimination of this division. All of the division's traceable fixed costs could be avoided if the division was dropped. None of the allocated common corporate fixed costs could be avoided. If the Rubber Division was dropped at the beginning of last year, the financial advantage (disadvantage) to the company for the year would have been:
A) ($20,000) 
B) $20,000 
C) $25,000 
D) ($25,000)

Quizplus · Accepted Answer

If the Rubber Division had been eliminated, Vanik would have lost its segment margin of $20,000. Consequently, overall net operating income would have been $20,000 lower.

Vanik Corporation Currently Has Two Divisions Which Had the Following