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The president of Ravens, Inc., attended a seminar about the contribution margin model and returned to her company full of enthusiasm about it. She requested that last year's traditional model income statement be revised, and she received the following report: Division Total Sales Variable expenses Contribution margin Fixed expenses Net income (loss) $502,000 $194,000 $134,000 $174,000 93,000 $228,000 81,000 66,000 $81,000 53,000 $ 47,000 24,000 $ (5,000 28,000 Company 274,000 181,000 113,000 68,000 57,000 71,000 The president was told that the fixed expenses of $181,000 included $99,000 that had been split evenly between divisions because they were general corporate expenses. After looking at the statement, the president exclaimed, "I knew it! Division B is a drag on the whole company. Close it down!" Required: a. Evaluate the president's remark. The president's remark ignores the misleading result of arbitrarily allocated fixed expenses The president's remark ignores the misleading result of arbitrarily allocated variable expenses b. Calculate what the company's net income would be if Division B were closed down Net income without Division B c. What is the policy statement related to the allocation of fixed expenses Never arbitrarily allocate fixed expenses Never arbitrarily allocate variable expenses

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