Consider the Marshall Company's segment analysis: Common costs are allocated arbitrarily based on sales dollars. If Marshall eliminates Segment B, what is the impact on the operating loss of the company?
A)The loss decreases by $40,000.
B)The loss increases by $20,000.
C)The loss decreases by $60,000.
D)The loss increases by $40,000.

Question

Consider the Marshall Company's segment analysis:  Common costs are allocated arbitrarily based on sales dollars. If Marshall eliminates Segment B, what is the impact on the operating loss of the company?
A)The loss decreases by $40,000. 
B)The loss increases by $20,000. 
C)The loss decreases by $60,000. 
D)The loss increases by $40,000.

Quizplus · Accepted Answer

Since the common costs are arbitrarily allocated, a more appropriate segment analysis follows:
 11eb16ac_dffc_1e9d_984d_f16a4363b801_TB6154_00 It is apparent from this analysis, that the company would lose $20,000 of profits.

Consider the Marshall Company's Segment Analysis: Common Costs Are