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:

Line Structure

A simplified representation of a chemical structure using lines to denote chemical bonds and avoiding explicit representation of carbon and hydrogen atoms.

Butanoic Acid

A carboxylic acid with the formula C4H8O2, also known as butyric acid, with a characteristic unpleasant smell, used in the manufacturing of various esters.

Propanoic Acid

A naturally occurring carboxylic acid with the formula C3H6O2, commonly used as a food preservative.

Valeric Acid

An organic compound with the formula C5H10O2, known for its unpleasant odor, used in the synthesis of esters for fragrance or flavoring.