Problem:
Domino Company's management wants to determine if Division B should be eliminated. The following data are available (in thousands):
Contribution Margin Income Statement
Division A Division B Division C Total
Sales $800 $800 $1,200 $2,800
Less variable costs 560 500 720 1,780
Contribution margin $240 $300 $ 480 $1,020
Less direct fixed costs 140 340 240 720
Segment margin $100 ($ 40) $240 $ 300
Less common fixed costs 180
Operating income $120
Q1. Assuming all direct fixed costs of Division B are avoidable (traceable), what would be the change in operating income if Division B were eliminated?
Q2. Assuming one-half of the direct fixed costs of Division B are avoidable, what would be the change in operating income if Division B were eliminated?
Q3. If Division A’s sales increase $80,000, the over all company net income will be?
Q4. If a promotional program at Division A costing $25,000 increases sales by $80,000, Should they go with the promotional program?