Redmond Ltd Is Closing One of Its Divisions

question 21

Multiple Choice

Redmond Ltd is closing one of its divisions. Operating data on this division follows: Overhead consists of $30,000 in salary and $10,000 for rent and insurance. The salary is for the chief engineer, who will continue to work for Redmond 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) $10,000 decrease
• B) $40,000 decrease
• C) $40,000 increase
• D) $30,000 decrease

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Definitions:

Limited Liability Partnership

A partnership in which some or all partners have limited liabilities, protecting them from being personally liable for the acts of the partnership.

Business Organization

A structured commercial or entrepreneurial entity set up according to a particular legal framework to conduct business and provide goods or services.

Perfect Substitutes

Products or offerings that serve as substitutes for one another without diminishing the consumer's satisfaction.

Indifference Curves

Graphical representations in economics showing different combinations of two goods that provide equal utility or satisfaction to a consumer.