Cost Accounting Quiz
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DECISION MAKING USING COST INFORMATION
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Global Retail operates five regional divisions. The Mountain division reports annual results showing a $45,000 operating loss: sales revenue $380,000, cost of goods sold $250,000, direct operating expenses $145,000, and allocated corporate expenses $30,000. Investigation shows that $85,000 of direct operating expenses would continue if the division closes (primarily lease commitments and equipment depreciation), while $60,000 could be eliminated. If Mountain division closes, corporate expects that 40% of its sales volume would transfer to the Pacific division at a 35% contribution margin rate.
What is the net annual impact on corporate profits from closing the Mountain division?
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