Question - Olson Company has three departments. Data for the most recent year is presented below:
Dept. C Dept. A Dept. T
Sales $4,000 $1,920 $2,240
Variable expenses 3,280 1,420 520
Unavoidable fixed expenses 480 180 440
Avoidable fixed expenses 555 265 360
Operating income (loss) $(315) $55 $920
Olson Company is considering eliminating Dept. C because it is operating at a loss.
Required:
1. Compute the change in operating income if Olson Company eliminates Dept. C and does not replace it.
2. Compute the change in operating income if Olson Company eliminates Dept. C and doubles the sales of Dept. T without increasing fixed costs.