The Dropinsky Company's Management Wants to Determine If Division Y

question 14

Essay

The Dropinsky Company's management wants to determine if Division Y should be eliminated. The following data are available (in thousands).
$\begin{array}{|l|l|l|l|l|}\hline \text { SegmentedIncome Statement } &\\\hline & \text { Division } \mathrm{X} & \text { Division } \mathrm{Y} & \text { Division } Z & \text { Total } \\\hline \text { Sales } & \$ 200 & \$ 300 & \$ 400 & \$ 900 \\\hline \text { Less variable costs } & 80 & 150 & 160 & 390 \\\hline \text { Contributionmargin } & \$ 120 & \$ 150 & \$ 240 & \$ 510 \\\hline \text { Less direct fixed costs } & 70 & 170 & 120 & 360 \\\hline \text { Segment margin } & \$ 50 & (\$ 20) & \$ 120 & \$ 150 \\\hline \text { Less common fixed costs } & & & & 90 \\\hline \text { Operatingincome } & & & & \$ 60 \\\hline\end{array}$
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:

Genomic Imprinting

A biological occurrence where specific genes are activated based on which parent they are inherited from.

Polygenic Inheritance

An inheritance pattern in which traits are controlled by more than one gene, contributing to the phenotype in a cumulative or interactive manner.

Incomplete Dominance

A genetic situation in which one allele does not completely dominate another allele, resulting in a new phenotype that blends the parents' traits.

Monozygotic

Pertaining to identical twins that developed from a single fertilized egg, sharing the same genetics.