The operations of Smits Ltd. are divided into the Childs Division and the Jackson Division. Projections for the next year are as follows: $\begin{array} { llll}
&\text { Childs } & \text { Jackson } & \
&\text { Division } & \text { Division } & \text { Total }\
\hline \text {Sales}&£ 250,000 & £ 180,000&£ 430,000\
\text {Variable costs}&90,000 & 100,000 & 190,000\
\text {Contributi on margin}&£ 160,000 & £ 80,000 & £ 240,000\
\text {Direct fixed costs}&75,000&62,500&137,500\
\text {Segment margin}&£ 85,000&£ 17,500 &£ 102,500\
\text {Allocated common costs}&35,000 & 27,500 & 62,500\
\text {Operating income (loss)}&£ 50,000 &£(10,000)&£ 40,000\
\end{array}$ Operating income for Smits Ltd. as a whole if the Jackson Division were dropped would be
A)£22,500.
B)£40,000.
C)£50,000.
D)£60,000.

Question

The operations of Smits Ltd. are divided into the Childs Division and the Jackson Division. Projections for the next year are as follows: $\begin{array} { llll} 
&\text { Childs } & \text { Jackson } & \
&\text { Division } & \text { Division } & \text { Total }\
\hline \text {Sales}&£ 250,000 & £ 180,000&£ 430,000\
\text {Variable costs}&90,000 & 100,000 & 190,000\
\text {Contributi on margin}&£ 160,000 & £ 80,000 & £ 240,000\
\text {Direct fixed costs}&75,000&62,500&137,500\
\text {Segment margin}&£ 85,000&£ 17,500 &£ 102,500\
\text {Allocated common costs}&35,000 & 27,500 & 62,500\
\text {Operating income (loss)}&£ 50,000 &£(10,000)&£ 40,000\
\end{array}$ Operating income for Smits Ltd. as a whole if the Jackson Division were dropped would be
A)£22,500.
B)£40,000.
C)£50,000.
D)£60,000.

Quizplus · Accepted Answer

If the Jackson Division were dropped, the company's total sales would decrease by £180,000, its total variable costs would decrease by £100,000, its total direct fixed costs would decrease by £62,500, and its total allocated common costs would decrease by £27,500. This would result in an increase in the company's operating income of £22,500.

The Operations of Smits Ltd Operating Income for Smits Ltd