The Operations of Jorge Corporation Are Divided into the Northern

question 137

Essay

The operations of Jorge Corporation are divided into the Northern Division and the Eastern Division.Projections for the next year are as follows:
$$\begin{array} { | l | r | r | r | } \hline & \begin{array} { r } \text { Northem } \\\text { Division }\end{array} & \begin{array} { r } \text { Eastem } \\\text { Division }\end{array} & \text { Total } \\\hline \text { Sales } & \$ 750,000 & \$ 540,000 & \$ 1,290,000 \\\hline \text { Less: Variable costs } & 270,000 & 300,000 & 570,000 \\\hline \text { Contribution margin } & \$ 480,000 & \$ 240,000 & \$ 720,000 \\\hline \text { Less: Direct fixed costs } & 225,000 & 190,000 & 415,000 \\\hline \text { Segment margin } & \$ 255,000 & \$ 50,000 & \$ 305,000 \\\hline \begin{array} { l } \text { Less: Allocated common } \\\text { costs }\end{array} & 130,000 & 95,000 & 225,000 \\\hline \text { Operating inc ome (loss) } & \$ 125,000 & \$ 45,000 ) & \$ 80,000 \\\hline\end{array}$$

Required:
a.Operating income for Jorge Corporation,as a whole,if the Eastern Division were dropped would be:
b.If Eastern Division is dropped,Northern's sales will increase by 20%.What will Jorge Corporation's operating income be?

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Definitions:

Corporate Tax Rate

The tax rate imposed on the net income of a corporation by the government.

Tax Shield

The reduction in income taxes that results from taking an allowable deduction from taxable income, such as the interest on debt.

Stand-Alone

Describes something that operates independently or can function without the need for external support.

Bottom-Up

An approach that starts at the most specific, detailed level and works up to a broader perspective, especially in planning and analysis.