The Kelso Company Has Two Divisions--Eastern and Western Management of Kelso Is Considering the Elimination of the Eastern

question 64

Multiple Choice

The Kelso Company has two divisions--Eastern and Western. The divisions have the following revenues and expenses: $\begin{array}{l}&\text { Eastem }&\text { Westem }\\\text {Sales. }&£ 450,000 & £ 400,000 \\\text {Variable expenses }&225,000 & 150,000 \\\text { Traceable fixed expenses.}&130,000 & 105,000 \\\text {Allocated common corporate expenses. }&120,000 & 95,000 \\\text { Net operating income (loss) .}&£(25,000) &£ 50,000\end{array}$
Management of Kelso is considering the elimination of the Eastern Division. If the Eastern Division were eliminated, its traceable fixed expenses could be avoided. The total common corporate expenses would be unaffected. Given these data, the elimination of the Eastern Division would result in an overall company net operating income (loss) of

• A)£50,000.
• B)(£70,000).
• C)£25,000.
• D)(£75,000).

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Definitions:

Fixed Overhead

Regular, ongoing costs incurred by a business that do not vary with production levels, such as rent, salaries, and insurance.

Period Cost

A financial term referring to costs that are not directly tied to the production process and are expensed in the period in which they are incurred.

Sales Revenues

The revenue a company earns from selling products or offering services.

Cost of Goods Sold

The direct costs attributable to the production of goods sold by a company, including the cost of materials and labor.