Problem - Betty Hopper, controller for Diamond Manufacturing Company, has prepared the following financial information for the most recent period showing profitability the of its three divisions:
|
Appliance
|
Electronics
|
Furniture
|
|
Sales
|
$102,000
|
$108,000
|
$120,000
|
|
Variable expenses
|
86,000
|
92,000
|
114,000
|
|
Contribution margin
|
16,000
|
16,000
|
6,000
|
|
Fixed expenses:
|
|
|
|
|
Factory insurance
|
1,000
|
1,400
|
2,200
|
|
Depreciation
|
2,000
|
2,600
|
3,600
|
|
Advertising
|
600
|
600
|
600
|
|
Utilities
|
800
|
1,000
|
1,200
|
|
Total fixed expenses
|
4,400
|
5,600
|
7,600
|
|
Operating income
|
$11,600
|
$10,400
|
($ 1,600)
|
The factory insurance and advertising assigned to the furniture division is avoidable if the division is discontinued. Depreciation will remain unchanged if a division is dropped. Discontinuing furniture will reduce the utilities by $800.
Required: If the Furniture division is eliminated, what will be effect on the overall profit for Diamond?