The Dropinsky Company's Management Wants to Determine If Segment B

question 34

Essay

The Dropinsky Company's management wants to determine if Segment B should be eliminated.The following data are available (in thousands).

a.Assuming all direct fixed costs of Segment B are avoidable,what would be the change in operating income if Segment B were eliminated?
b.Assuming one-half of the direct fixed costs of Segment B are avoidable,what would be the change in operating income if Segment B were eliminated?

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Definitions:

Net Markdowns

The total decrease in the original selling prices of products, accounting for promotions or clearance sales, minus any markdown cancellations.

Periodic Inventory System

An inventory accounting system where the inventory balance is updated and the cost of goods sold is calculated only at the end of each accounting period.

Merchandise Purchases

The acquisition of goods for resale at a profit, a central activity of retail and wholesale businesses.

Lower of Average Cost or Market

An inventory valuation method where inventory is valued at either its average cost or market value, whichever is lower.