The operations of Smits Corporation are divided into the Child Division and the Jackson Division. Projections for the next year are as follows:

Child

Division Jackson

Division

Total

Sales revenue $250,000 $180,000 $430,000

Variable expenses 90,000 100,000 190,000

Contribution margin $160,000 $80,000 $240,000

Direct fixed expenses 75,000 62,500 137,500

Segment margin $85,000 $17,500 $102,500

Allocated common costs 35,000 27,500 62,500

Total relevant benefit (loss) $50,000 $ (10,000) $40,000

Operating income for the Smith's corporation as a whole if the Jackson's division were dropped is $22,500

Explanation:

The operations of Smith's Corporation are divided into the Child Division and the Jackson Division. Projections for the next year are as follows:

Child Division Jackson Division Total

Sales revenue $250,000 $180,000 $430,000

Variable expenses 90,000 100,000 190,000

Contribution margin $160,000 $80,000 $240,000

Direct fixed expenses 75,000 62,500 137,500

Segment margin $85,000 $17,500 $102,500

Allocated common costs 35,000 27,500 62,500

Total relevant benefit $50,000 $ (10,000) $40,000

Operating income for the Smith's corporation as a whole if the Jackson's division were dropped

Child Division

Sales revenue $250,000

Variable expenses 90,000

Contribution margin $160,000

Direct fixed expenses 75,000

Segment margin $85,000

Allocated common costs 62,500

Total relevant benefit $22,500

Note that common fixed costs will be borne by the child division alone when the Jackson division is closed which is the entire 62,500 is deducted from the sales margin of child division before arriving at profit