Collage Ltd Is Closing One of Its Divisions $\begin{array} { l l } \text { Sales } & \$ 120,000 \\\text { Variable costs } & 46,000 \\\text { Overhead } & 60,000\end{array}$

question 82

Multiple Choice

Collage Ltd is closing one of its divisions. Operating data on this division follows:
$\begin{array} { l l } \text { Sales } & \$ 120,000 \\\text { Variable costs } & 46,000 \\\text { Overhead } & 60,000\end{array}$
Overhead consists of $50,000 in salary and $10,000 for rent and insurance. The salary is for the production manager, who will continue to work for Collage 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) $60,000 decrease
• B) $74,000 decrease
• C) $74,000 increase
• D) $46,000 increase

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