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Fallow Corporation Has Two Separate Profit Centers The West Division Occupies 5,000 Square Feet in the Plant

question 134

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Fallow Corporation has two separate profit centers. The following information is available for the most recent year:  West Division East Division Sales (net)  $200,000$350,000 Salary expense 26,00040,000 Cost of goods sold 80,000175,000\begin{array}{lrr}&\text { West Division}&\text { East Division}\\\text { Sales (net) } & \$ 200,000 & \$ 350,000 \\\text { Salary expense } & 26,000 & 40,000 \\\text { Cost of goods sold } & 80,000 & 175,000\end{array} The West Division occupies 5,000 square feet in the plant. The East Division occupies 3,000 square feet. Rent, which was $40,000 for the year, is an indirect expense and is allocated based on square footage. Compute operating income for the West Division.

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Definitions:

Competitive Price-Taker

A market participant who cannot influence the price on the market but instead must accept the prevailing market price.

Marginal Revenue

The additional income earned from selling one more unit of a good or service.

Competitive Price-Taker

A market participant who accepts the prevailing market prices as given because they have no power to influence those prices due to intense competition.

Marginal Cost

The increase in total cost that arises from producing one additional unit of a product or service.

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