Question - Green Industries has two sales territories-East and West. Financial information for the two territories is presented below:
East West Total
Sales $980,000 $750,000 $1,730,000
Direct costs:
Variable (343,000) (225,000) (568,000)
Fixed (450,000) (325,000) (775,000)
Allocated common costs (275,000) (175,000) (450,000)
Net income (loss) $(88,000) $ 25,000 $(63,000)
Because the company is in a start-up stage, corporate management feels that the East sales territory is creating too much of a cash drain on the company and it should be eliminated. If the East territory is discontinued, one sales manager (whose salary is $40,000 per year and is part of the fixed costs) will be relocated to the West territory. By how much would Green's income change if the East territory is eliminated? Recast the income statements in a format that provides information to support your answer.