Summers Corporation is composed of five divisions.Each division is allocated a share of Summers's overhead to make divisional managers aware of the cost of running the corporate headquarters.The following information relates to the Metro Division:
If the Metro Division is closed,100% of the traceable fixed operating costs can be eliminated.What will be the impact on Summers's overall profitability if the Metro Division is closed?
A)Decrease by $200,000.
B)Decrease by $500,000.
C)Decrease by $2,100,000.
D)Decrease by $2,400,000.
E)None of thesE.

Question

Summers Corporation is composed of five divisions.Each division is allocated a share of Summers's overhead to make divisional managers aware of the cost of running the corporate headquarters.The following information relates to the Metro Division: 
If the Metro Division is closed,100% of the traceable fixed operating costs can be eliminated.What will be the impact on Summers's overall profitability if the Metro Division is closed?
A)Decrease by $200,000. 
B)Decrease by $500,000. 
C)Decrease by $2,100,000. 
D)Decrease by $2,400,000. 
E)None of thesE.

Quizplus · Accepted Answer

The traceable fixed operating costs of the Metro Division are $500,000 ($100,000 + $75,000 + $175,000 + $150,000). If the Metro Division is closed, these costs will be eliminated, leading to a decrease in Summers Corporation's overall profitability by $500,000. None of the other options are correct as they do not consider the elimination of the traceable fixed operating costs of the Metro Division.

Summers Corporation Is Composed of Five Divisions