Heritage Homemakers Corp. (HHC) is composed of eight divisions across Canada, and each division is allocated a share of HHC overhead to make divisional managers aware of the cost of running the corporate headquarters. The following information relates to the Ontario Division: $\begin{array} { | l | l | }
\hline \text { Sales revenue } & \$ 8,500,000 \
\hline \text { Variable operating costs } & 6,000,000 \
\hline \text { Traceable fixed operating costs } & 2,000,000 \
\hline \text { Allocated corporate overhead } & 200,000 \
\hline
\end{array}$ If the Ontario Division is closed, 100% of the traceable fixed operating costs can be eliminated. The impact on HHC's profitability if the Ontario Division is closed is a:

Question

Heritage Homemakers Corp. (HHC) is composed of eight divisions across Canada, and each division is allocated a share of HHC overhead to make divisional managers aware of the cost of running the corporate headquarters. The following information relates to the Ontario Division: $\begin{array} { | l | l | } 
\hline \text { Sales revenue } & \$ 8,500,000 \
\hline \text { Variable operating costs } & 6,000,000 \
\hline \text { Traceable fixed operating costs } & 2,000,000 \
\hline \text { Allocated corporate overhead } & 200,000 \
\hline
\end{array}$ If the Ontario Division is closed, 100% of the traceable fixed operating costs can be eliminated. The impact on HHC's profitability if the Ontario Division is closed is a:

Quizplus · Accepted Answer

If Ontario Division is closed, the only expenses that will be eliminated are the traceable fixed operating costs of $2,000,000. The allocated corporate overhead of $200,000 will still be allocated to the remaining divisions, and therefore will not be eliminated.

The contribution margin for Ontario Division is calculated as follows:

Sales revenue - Variable operating costs - Traceable fixed operating costs = Contribution margin 
$8,500,000 - $6,000,000 - $2,000,000 = $500,000

Therefore, if Ontario Division is closed, the overall impact on HHC's profitability would be a decrease in contribution margin of $500,000.

Heritage Homemakers Corp If the Ontario Division Is Closed, 100% of the Traceable