XYZ Company has four sales territories and is considering eliminating the Great Lakes Region which had sales of $110,000, direct expenses of $70,000 and indirect expenses of $60,000. If the Great Lakes Region is eliminated, 80% of the indirect expenses would still remain. If this region were to be eliminated, the company's overall net income would be:

Question

Quizplus · Accepted Answer

To calculate the change in net income, we need to subtract the total expenses (direct and indirect) of the Great Lakes Region from its sales, which gives us a profit of $110,000 - ($70,000 + $60,000) = -$20,000.

If the region is eliminated, we need to consider the impact on the indirect expenses. 80% of $60,000 is $48,000 that would remain. Therefore, the total reduction in expenses would be $70,000 + $12,000 = $82,000.

The overall net income would change by the total profit/loss of the Great Lakes Region minus the reduction in expenses:

Net income change = -$20,000 - $82,000 = -$102,000

Therefore, the answer is D, $28,000 lower.

XYZ Company Has Four Sales Territories and Is Considering Eliminating