Question

The operations of Winston Corporation are divided into the Blink Division and the Blur Division. Projections for the next year are as follows:

	Blink Division				Blur Division				Total
Sales	$	310,000			$	180,000			$	490,000
Variable costs		104,000				83,000				187,000
Contribution margin	$	206,000			$	97,000			$	303,000
Direct fixed costs		90,000				76,000				166,000
Segment margin	$	116,000			$	21,000			$	137,000
Allocated common costs		45,000				37,500				82,500
Operating income (loss)	$	71,000			$	(16,500	)		$	54,500

Operating income for Winston Corporation, as a whole, if the Blur Division was dropped would be:

$54,500.

$87,500.

$71,000.

$33,500.

Answer 1

Correct answer---------$33,500

Working

	Blink Division	Blur Division	Total
Sales	$ 310,000.00		$ 310,000.00
Variable costs	$ 104,000.00		$ 104,000.00
Contribution margin	$ 206,000.00		$ 206,000.00
Direct fixed costs	$    90,000.00		$    90,000.00
Segment margin	$ 116,000.00		$ 116,000.00
Allocated common costs	$    45,000.00	$    37,500.00	$    82,500.00
Operating income (loss)	$    71,000.00	$   (37,500.00)	$    33,500.00

When blur division is dropped there will be no direct fixed cost but the allocated fixed cost will still incur as before.