Calgary Corporation Is Closing One of Its Divisions

question 41

Multiple Choice

Calgary Corporation is closing one of its divisions. Operating data on this division follows: Sales $80,000
Variable costs 40,000
Overhead 40,000
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 Calgary 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:

Excludable

A characteristic of a good where it is possible to prevent people who have not paid for it from having access to it.

Rival

A term describing a good or resource that cannot be enjoyed by more than one individual or group without reducing its availability to others.

Private Good

A product or service that is excludable and rival in consumption, meaning its use is limited to paying customers and one individual's use diminishes another's ability to use it.

Cheeseburger

A cooked ground beef patty served between two slices of a bun, often with various toppings such as cheese, lettuce, and tomatoes.