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.

Leave a Comment