The Operations of Grant Ltd ADetermine Operating Income for Grant Ltd

question 27

Essay

The operations of Grant Ltd. are divided into the Fix Division and the Roach Division. Projections for the next year are as follows: $\begin{array}{llll}&\text {Fix}&\text {Roach}\\&\text { Division}&\text { Division }&\text {Total }\\\text { Sales } & £ 60,000 & £ 40,000 & £ 100,000 \\\text { Variable costs } & \underline{20,000} & \underline{15,000} &\underline{35,000}\\\text { Contribution margin } & £ 40,000 & £ 25,000 &{£ 65,000} \\\text { Direct fixed costs } & \underline{12,500} &\underline{30,000}& \underline{42,500} \\ \text { Segment margin } &{£ 27,500}&{£(5,000)} & {£ 22,500}\\\text { Allocated common costs }& \underline{10,000}& \underline{7,500}& \underline{17,500} \\\text { Operating income(loss) } & {£ 17,500} & {£(12,500)} &{£ 5,000}\end{array}$
a.Determine operating income for Grant Ltd. as a whole if the Roach Division is dropped.
b.Should the Roach Division be eliminated?

Understand the definitions and differences between Pigovian taxes and command-and-control policies.

Recognize the concept of externalities and their impact on market efficiency.

Identify and contrast different public policies toward externalities.

Calculate the social value of goods considering both external costs and benefits.

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Definitions:

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