The following information has been extracted from the books of the ABC company in respect of its
Question:
The following information has been extracted from the books of the ABC company in respect of its two operating divisions: Batteries Tyre Totals Sales Revenue 1,664,200 96,200 1,760,400 Cost of goods Sold 978,520 76,470 1,054,990 ----------- -------------- Gross Profit 685,980 19,730 705,410 Operating Expenses 527,940 43,600 571,540 ------------ ------------- Net Income 157,740 ( 23,870 ) 133,870 ======== ========= Additionally, it is determined that in the Tyre Division, the Cost of Goods Sold is made up of $ 70,000 in variable costs and $ 6,470 in Fixed Costs. Similarly the Operating Costs contains $ 15,000 of Variable Costs and $ 28,600 of Fixed Costs. None of the fixed costs will be saved if the Tyre Division is closed. The company’s accountant has recommended that the Tyre Division be discontinued. Required: a) Should the ABC company follow the recommendation of the accountant
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones