Prince Company's racquet division has projected a net operating loss of $190,000 for the coming year; fixed costs for the division total $325,000 (of which $115,000 are considered to be avoidable). As a result of the expected loss, Prince is considering dropping the racquet division. If this division is dropped, Prince estimates that the clothing division's sales will decrease 5% next year. The clothing division's projected operating income next year is $195,000, while projected contribution margin is $525,000. Should Prince Company drop the racquet division?
(please show your work)
a. No, because operating income will decrease $29,750.
b. Yes, because operating income will increase $115,000.
c. No, because operating income will decrease $46,250.
d. Yes, because operating income will increase $180,250.