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North Division has the following information: Sales $1250000 Variable expenses 645000 Fixed expenses 620000 If this division is eliminated, the fixed expenses will be allocated to the company’s other divisions. What is the incremental effect on net income if the division is dropped?

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facundobuzzetti

Answer:

Effect on income= $605,000 loss

Explanation:

Giving the following information:

Sales $1250000

Variable expenses 645000

Fixed expenses 620000

Because none of the fixed costs are avoidable, it shouldn't be taken into account.

The effect on income will be the loss on the positive contribution margin:

Effect on income= 1,250,000 - 645,000= $605,000 loss

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