The Dropinsky Company's Management Wants to Determine If Division Y $$\text { Sepmented Income Statement }$$

question 17

Essay

The Dropinsky Company's management wants to determine if Division Y should be eliminated.The following data are available (in thousands).
$$\text { Sepmented Income Statement }$$
$\begin{array}{lrrrr}& \text { Division } \mathrm{X} & \text { Division } \mathrm{Y} & \text { Division } \mathrm{Z} & \text { Total }\\\text { Sales } & \$ 200 & \$ 300 & \$ 400 & \$ 900 \\\text { Less variable costs } & \frac{80}{} & \underline{150} & \underline{160} & \underline{390} \\\text { Contribution margin } & \$ 120 & \$ 150 & \$ 240 & \$ 510 \\\text { Less direct fixed costs } & \underline{70} & \underline{170} & \underline{120} & \underline{360} \\\text { Segment margin } & \$ 50 & \underline{\$ 20} & \underline{\$ 120} & \$ 150 \\\text { Less common fixed costs } & & & & \underline{90} \\\text { Operating income } & & & & \underline{\$ 60} \\\end{array}$
a. Assuming all direct fixed costs of Division Y are avoidable, what would be the change in operating income if Division Y were eliminated?
b. Assuming one-half of the direct fixed costs of Division Y are avoidable, what would be the change in operating income if Division Y were eliminated?

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Definitions:

Ambrosia

In classical mythology, the food of the gods, or in general usage, something extremely pleasing to taste or smell.

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The chemical process where rocks react with oxygen, leading to changes in their mineral composition and often causing them to weaken or crumble.

Earth's Surface

The outermost layer of the Earth, consisting of the crust and parts of the upper mantle that interact directly with the biosphere and atmosphere.

Minerals

Naturally occurring, inorganic solids with a definite chemical composition and a crystalline structure, forming the building blocks of rocks.