Calgary Corporation is closing one of its divisions. Operating data on this division follows: $$\begin{array} { l r }
\text { Sales } & \$ 80,000 \
\text { Variable costs } & 40,000 \
\text { Overhead } & 40,000
\end{array}$$ Overhead consists of $30,000 in salary and $10,000 for rent and insurance. The salary is for the chief engineer, who will continue to work for Calgary even if the division is closed.
Assuming all overhead costs continue to be incurred even if the division closes, what will be the effect on overall company profits of closing the division?
A) $10,000 decrease
B) $40,000 decrease
C) $40,000 increase
D) $30,000 decrease

Question

Calgary Corporation is closing one of its divisions. Operating data on this division follows: $$\begin{array} { l r } 
\text { Sales } & \$ 80,000 \
\text { Variable costs } & 40,000 \
\text { Overhead } & 40,000
\end{array}$$ Overhead consists of $30,000 in salary and $10,000 for rent and insurance. The salary is for the chief engineer, who will continue to work for Calgary even if the division is closed.
Assuming all overhead costs continue to be incurred even if the division closes, what will be the effect on overall company profits of closing the division?
A) $10,000 decrease
B) $40,000 decrease
C) $40,000 increase
D) $30,000 decrease

Quizplus · Accepted Answer

The Answer of Calgary Corporation is closing one of its divisions. Operating data on this division follows: $$\begin{array} { l r } 
\text { Sales } & \$ 80,000 \
\text { Variable costs } & 40,000 \
\text { Overhead } & 40,000
\end{array}$$ Overhead consists of $30,000 in salary and $10,000 for rent and insurance. The salary is for the chief engineer, who will continue to work for Calgary even if the division is closed.
Assuming all overhead costs continue to be incurred even if the division closes, what will be the effect on overall company profits of closing the division?
A) $10,000 decrease
B) $40,000 decrease
C) $40,000 increase
D) $30,000 decrease

Calgary Corporation Is Closing One of Its Divisions Sales $80,000 Variable costs 40,000 Overhead 40,000\begin{array} { l r } \text { Sales } & \$ 80,000 \\\text { Variable costs } & 40,000 \\\text { Overhead } & 40,000\end{array} Sales Variable costs Overhead ​$80,00040,00040,000​

Calgary Corporation Is Closing One of Its Divisions $\begin{array} { l r } \text { Sales } & \$ 80,000 \\\text { Variable costs } & 40,000 \\\text { Overhead } & 40,000\end{array}$