Problem-
The Rial Company's income statement for June is given below:
|
|
Total
|
Division F
|
Division L
|
|
Sales
|
$476,000
|
$296,000
|
$180,000
|
|
Variable expenses
|
204,960
|
150,960
|
54,000
|
|
Contribution margin
|
271,040
|
145,040
|
126,000
|
|
Traceable fixed expenses
|
138,600
|
64,800
|
73,800
|
|
Segment margin
|
132,440
|
$80,240
|
$52,200
|
|
Common fixed expenses
|
44,600
|
|
|
|
Net operating income
|
$87,840
|
|
|
A proposal has been made that will lower variable expenses in Division L to 25% of sales. However, this reduction can only be accomplished by a $22,800 increase in Division L's traceable fixed expenses. If this proposal is implemented and if sales remain constant, overall company net operating income should:
a. increase by $22,800
b. increase by $31,800
c. decrease by $13,800
d. decrease by $22,800
Additional Requirement-
The problem belongs to Accounting and it discusses on compute of net operating income.