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Answer:
Companywide income would increase by $6,000 if West Division is eliminated.
Explanation:
The amount by which the companywide income will increase or decrease if West Division is eliminated can be determined by comparing Revenue with avoidable cost.
Avoidable cost refers to the cost that will be eliminated or not incurred if a firm decides to change the course of a business.
In this question, avoidable cost is simply the cost or expenses that will be eliminated if West Division is eliminated.
Among all the expenses in the question, only Companywide facility-sustaining costs which is $78,000 cannot be eliminated if West Division is eliminated.
Therefore, avoidable cost can be calculated as follows:
Avoidable cost = Salaries for drivers + Fuel expenses + Insurance + Division-level facility-sustaining costs = 210,000 + 30,000 + 42,000 + 24,000 = $306,000
Since, Revenue = $300,000
Decision rule:
1. If revenue is greater than avoidable cost, we have a decrease in income. Therefore, the division should not be eliminated.
2. If revenue is less than avoidable cost, we have an increase in income. Therefore, the division should be eliminated.
Since the revenue of $300,000 is less than the avoidable cost of $306,000, it implies we have an increase in income based on the decision rule 2. The increase in income is calculated as follows:
Increase in income if West Division is eliminated = Avoidable cost – Revenue = $306,000 - $300,000 = $6,000
Therefore, companywide income would increase by $6,000 if West Division is eliminated
Since there would be an increase in income of $6,000, West Division should therefore be eliminated.
"The Company-wide income would increase by $6,000 if West Division is eliminated. To understand more information check below".
What is the Companywide Income?
When The amount by which the companywide income will increase or decrease Then if West Division is eliminated can be determined by approximating Revenue with avoidable cost.
Now avoidable cost directs to the cost that will be destroyed or not incurred if a firm decides to modify the course of a business.
In this query, The avoidable cost is the cost of expenditures that will be eliminated if the West Division is eliminated.
Also, Among all the expenses in the question, Then, only Companywide facility-sustaining costs which are $78,000 cannot be eliminated if West Division is eliminated.
Thus, avoidable cost can be calculated as follows:
Avoidable cost is = Salaries for drivers + Fuel expenses + Insurance + Division-level facility-sustaining costs is = 210,000 + 30,000 + 42,000 + 24,000 is = $306,000
Since, The Revenue is = $300,000
Determination rule:
1. If revenue is greater than avoidable cost, we have a reduction in income. Thus, the division should not be eliminated.
2. If revenue is less than avoidable cost, we have an income growth. Thus, the division should be eliminated.
Since the revenue of $300,000 is more undersized than the avoidable cost of $306,000, it implies we have an increase in income based on determination rule 2.
The increase in income is calculated as tracks:
Increase in income if West Division is eliminated is = Avoidable cost – Then the Revenue is = $306,000 - $300,000 = $6,000
Thus, companywide income would rise by $6,000 if West Division is eliminated
Since there would be an increase in income of $6,000, West Division should thus be eliminated.
Find more information about Companywide Income here:
https://brainly.com/question/25578040
