North Division has the following information: If this division is eliminated the fixed expenses will be allocated to the company's other divisions.What is the incremental effect on net income if the division is dropped?
A)$130,000 increase
B)$410,000 decrease
C)$280,000 decrease
D)$190,000 increase

Question

North Division has the following information:  If this division is eliminated the fixed expenses will be allocated to the company's other divisions.What is the incremental effect on net income if the division is dropped?
A)$130,000 increase 
B)$410,000 decrease 
C)$280,000 decrease 
D)$190,000 increase

Quizplus · Accepted Answer

There is no information given about the revenues or variable expenses of North Division, so we cannot determine the total cost of the division. However, dropping the division will result in its fixed expenses being allocated to the company's other divisions. This will increase the fixed expenses of the remaining divisions, resulting in a decrease in net income. Therefore, the correct answer is a decrease in net income, which eliminates choices A and D. Since we do not have enough information to determine the exact amount of the decrease, the best choice is C, which is the only option that represents a decrease in net income.

North Division Has the Following Information: If This Division