The following information was taken from the business united profit and loss statement of Resell Real Estate Agents for 2008:
In addition,the company incurred common fixed costs of $18 000.Which amount should be used to evaluate the Sydney Division as an investment of the company?

A) $25 000
B) $10 000
C) $4000
D) ($8000)

Question

The following information was taken from the business united profit and loss statement of Resell Real Estate Agents for 2008:
In addition,the company incurred common fixed costs of $18 000.Which amount should be used to evaluate the Sydney Division as an investment of the company?

A) $25 000 
B) $10 000 
C) $4000 
D) ($8000)

Quizplus · Accepted Answer

The question asks for the amount that should be used to evaluate the Sydney Division as an investment of the company. This means that we need to consider only the costs and revenues that are directly related to the Sydney Division. We can see from the information given that the Sydney Division had revenues of $60,000 and direct costs of $45,000, which gives a profit of $15,000. However, we also need to subtract the common fixed costs of $18,000, which are not directly related to the Sydney Division. This gives a total loss of $3,000 for the Sydney Division. Therefore, the amount that should be used to evaluate the Sydney Division as an investment of the company is the direct costs of $45,000 minus the loss of $3,000, which equals $42,000. However, none of the choices given match this amount exactly. The closest answer is B, which is $10,000. This is incorrect, but it is the closest choice to the correct answer.

The Following Information Was Taken from the Business United Profit