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15 February, 02:13

Soar Incorporated is considering eliminating its mountain bike division, which reported an operating loss for the recent year of $3,000. The division sales for the year were $1,050,000 and the variable costs were $860,000. The fixed costs of the division were $193,000. If the mountain bike division is dropped, 30% of the fixed costs allocated to that division could be eliminated. The impact on operating income for eliminating this business segment would be:

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  1. 15 February, 02:34
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    Decrease by $132,100

    Explanation:

    Computation of the given data are as follow:-

    We can calculate the Operating Income by using following formula:-

    Fixed Cost = Fixed Cost * Dropped Rate

    = $193,000 * 30/100

    = $57,900

    So, Operating Income = Sales - Variable Cost - Fixed Cost

    = $,1050,000 - $860,000 - $57,900

    = $132,100

    According to the Analysis, the operating income will be decrease by $132,100 if the business segment is eliminated.
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