Question - Operations of Borderland Oil Drilling Services are separated into two geographical divisions: United States and Mexico. The operating results of each division for 2013 are as follows:
|
United States
|
Mexico
|
Total
|
|
Sales
|
$7,200,000
|
$3,600,000
|
$10,800,000
|
|
Variable costs
|
(4,740,000)
|
(2,088,000)
|
(6 828 000)
|
|
Contribution margin
|
$2,460,000
|
$1,512,000
|
$3,972,000
|
|
Direct fixed costs
|
(800,000)
|
(490,000)
|
(1,290,000)
|
|
Segment margin
|
$1,660,000
|
$1,022,000
|
$2,682,000
|
|
Corporate fixed costs
|
(1,900,000)
|
(890,000)
|
(2,790,000)
|
|
Operating income (loss)
|
$(240,000)
|
$132,000
|
$(108,000)
|
Corporate fixed costs are allocated to the divisions based on relative sales. Assume that all of a division's direct fixed costs could be avoided by eliminating that division. Because the U.S. division is operating at a loss, Borderland's president is considering eliminating it.
If the U.S. division had been eliminated at the beginning of the year, what would have been Borderland's pre-tax income?