Somerset Corporation is composed of five divisions, and each division is allocated a share of Somerset overhead to make divisional managers aware of the cost of running the corporate headquarters. T
Somerset Corporation is composed of five divisions, and each division is
allocated a share of Somerset overhead to make divisional managers aware of the
cost of running the corporate headquarters. The following information relates to
the Metro Division:
Sales $7,500,000
Variable operating costs 5,100,000
Traceable fixed operating costs 1,900,000
Allocated corporate overhead 300,000
If the Metro Division is closed, 100% of the traceable fixed operating costs can be
eliminated. What will be the impact on Somerset’s overall profitability if the
Metro Division is closed?
A. Decrease by $200,000.
B. Decrease by $500,000.
C. Decrease by $2,100,000.
D. Decrease by $2,400,000.
E. None of the above.
