The president of Ravens Inc. attended a seminar about the contribution margin model and returned...
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Accounting
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 years traditional model income statement be revised, and she received the following report:
Division
Total Company
A
B
C
Sales
$
454,000
$
178,000
$
118,000
$
158,000
Variable expenses
256,000
107,000
64,000
85,000
Contribution margin
$
198,000
$
71,000
$
54,000
$
73,000
Fixed expenses
151,000
49,000
57,000
45,000
Net income (loss)
$
47,000
$
22,000
$
(3,000
)
$
28,000
The president was told that the fixed expenses of $151,000 included $87,000 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!"
Calculate what the company's net income would be if Division B were closed down.
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