Homework Answers
total income under different options:
A.$130 (readily given in the question).
B.
Eliminate west:
| East | morrison | total | |
| contribution margin | 80 | 120 | 200 |
| segment specific fixed cost | (10) | (25) | (35) |
| allocated company fixed cost | (15) | (15) | (45) (including west's portion) |
| net income | 55 | 80 | $120 |
C
eliminate west and increase sales of east by 15%.
| East | morission | total | |
| contribution margin (80+15%) | 92 | 120 | 212 |
| less: segment specific fixed cost | (10) | (25) | (35) |
| allocated fixed cost | (15) | (15) | (45) |
| net income | 67 | 80 | $132 |
d.
eliminate west and increase sales of morrison 8%.
| East | morission | total | |
| contribution margin (120+8%) | 80 | 129.6 | 209.6 |
| less: segment specific fixed cost | (10) | (25) | (35) |
| allocated fixed cost | (15) | (15) | (45) |
| net income | 55 | 89.6 | $129.6 |
E.
Increase sale of east 5% and morrison 5%.
| east | morrison | total | |
| contribution (80+5%) (120+5%) | 84 | 126 | 210 |
| segment specific fixed cost | (10) | (25) | (35) |
| allocated fixed cost | (15) | (15) | (45) |
| net income | 59 | 86 | 130 |
conclusion:
Option C is the best, since it has given the highest net income.
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