Closing down divisions. Belmont?Corporation?has four operating divisions. The budgeted revenues and expenses for each division for 2011 follows:

Further analysis of costs reveals the following percentages of variable costs in each division:

Closing down any division would result in savings of 40% of the fixed costs of that division.Top management is very concerned about the unprofitable divisions (A and B) and is considering closing them for the year.Required1. Calculate the increase or decrease in operating income if Belmont closes division A.2. Calculate the increase or decrease in operating income if Belmont closes division B.3. What other factors should the top management of Belmont consider before making adecision?

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Sales Cost of goods sold Selling, general, and administrative expenses Operating income/loss A $630,000 550,000 120,000 $ (40,000) Division B $ 632,000 620,000 135,000 $(123,000) C $960,000 765,000 144,000 $ 51,000 D $1,240,000 925,000 210,000 $ 105,000 Cost of goods sold Selling, general, and administrative expenses 90% 80% 50% 50% 90% 60% 85% 60% Sales Cost of goods sold Selling, general, and administrative expenses Operating income/loss A $630,000 550,000 120,000 $ (40,000) Division B $ 632,000 620,000 135,000 $(123,000) C $960,000 765,000 144,000 $ 51,000 D $1,240,000 925,000 210,000 $ 105,000 Cost of goods sold Selling, general, and administrative expenses 90% 80% 50% 50% 90% 60% 85% 60%

Answer rating: 100% (QA)

Required solution of all three parts is given below Ans 1 Division A Sales 504000 Variable cost of g... View the full answer