Question

Please show what formula you will use. Thank you Hamilton, Inc. has two divisions, Parker and...

Please show what formula you will use. Thank you

Hamilton, Inc. has two divisions, Parker and Blaine. Following is the income statement for the previous year:

Parker Blaine
Sales $1,200,000 $800,000
Variable Costs       600,000     450,000
Contribution Margin $600,000 $350,000
Fixed Costs       450,000     390,000
Net Operating Income $150,000 ($40,000)


Of the total fixed costs, $600,000 are common fixed costs that are allocated equally between the divisions. What would Hamilton's net operating income be if Blaine were dropped?
Selected Answer:

($240,000)
Answers:

($240,000)

($150,000)

$110,000

$150,000
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Homework Answers

Answer #1

Currently the common fixed costs are allocated equially between parker and blain. which would mean that the Fixed costs shown in the Income statement includes $600,000/2 = $300,000.

Hence the non-common fixed costs are:

Parker = Total fixed costs - Common fixed costs = $450,000 - $300,000 = $150,000

Blaine = Total fixed costs - Common fixed costs = 390,000 - $300,000 = $90,000

As a result if Blaine was dropped, the net income for Parker would be computed as

Sales - Variable Cost - Non-Common Fixed Cost - Entire Common Fixed Cost

=1,200,000 - 600,000 - 150,000 - 600,000 = -150,000

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