The operations of Gadwell Corporation are divided into the Blink Division and the Blur Division.Projections for the next year are as follows: If the Blur Division were dropped,Blink Division's sales would increase by 30%.If this happened,the operating income for Gadwell Corporation as a whole would be
A)$72,800
B)$56,000
C)$79,100
D)$59,150

Question

Quizplus · Accepted Answer

Let's assume the Blink Division's sales in the current year as "B" and the Blur Division's sales as "L".

The current operating income for Gadwell Corporation is:

0.20B + 0.15L

Now, according to the question, if the Blur Division were dropped, the Blink Division's sales would increase by 30%. Therefore, the new sales for the Blink Division would be:

1.3B

As the question doesn't mention anything about the cost, we can assume that the cost structure would remain unchanged.

Therefore, the operating income for Gadwell Corporation after dropping the Blur Division would be:

0.20(1.3B) = 0.26B

Now, we have two values of operating income, one with the Blur Division and another without the Blur Division. We need to compare these two values to find out which one is higher.

0.20B + 0.15L < 0.26B

0.15L < 0.06B

L < (0.6/1.5)B

L < 0.4B

This means that the Blur Division's sales should be less than 40% of the Blink Division's sales for dropping the Blur Division to be profitable.

As we don't have any information about the current sales of both the divisions, we cannot calculate the exact value. But option C is the only choice that satisfies the condition of L < 0.4B.

Therefore, the best choice is C.

The Operations of Gadwell Corporation Are Divided into the Blink