Check my work 10 Exercise 615A Segment elimination decision

Check my work 10 Exercise 6-15A Segment elimination decision LO 6-4 10 Gibson Transport Company divides its operations into four divisions. A recent income statement for its West Division follows: points Skipped eBook GIBSON TRANSPORT COMPANY West Division Income Statement for the Year 2019 Revenue Salaries for drivers Fuel expenses Insurance Division-level facility-sustaining costs Companywide facility-sustaining costs Net loss $ 580,000 (430,000) (58,000) (78,000) ( 48,000) (138,000) $(172,000) Hint Ask Print References Required a. By how much would companywide income increase or decrease if West Division is eliminated? Should West Division be eliminated? b. Assume that West Division is able to increase its revenue to $640,000 by raising its prices. Determine the amount of the increase or decrease that would occur in companywide net income. Should West Division be eliminated if revenue were $640,000? c. What is the minimum amount of revenue required to justify continuing the operation of West Division?

Solution

Answer:

A

Sale revenue

$580,000

less:Salaries for drivers

-430,000

   Fuel expense

-58,000

insurance

-78,000

Division line

-48,000

Total Expanses

-614,000

Net loss

-34,000

If division is eliminated the income would increase by $34,000

Yes Division should be eleminated

Notes:

Here we should not consider Companywide facility sustaining costs because it is not avoidable and therefore not relevant to the elimination decision

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B

Sale revenue

$640,000

less: Salaries for drivers

-430,000

   Fuel expense

-58,000

insurance

-78,000

Division line

-48,000

Total Expanses

-614,000

Net Income

26,000

So increse in net income by 26,000

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C

$614000 minimum revenue required

Sale revenue		$580,000
less:Salaries for drivers	-430,000
Fuel expense	-58,000
insurance	-78,000
Division line	-48,000
Total Expanses		-614,000
Net loss		-34,000