Answer:
If the division is discontinued theincome of the firm will decrease by 80,000
It is a financial disadvantage to do it.
Explanation:
The department data can be disclosure as follow:
contribution 110,000
tracable fixed cost (30,000) (20% ofthe fixed cost)
operating income 80,000
allocate fixed (120,000) (150,000 - 30,000)
Result (40,000)
If the segment is discontinued; the other department will absorp the 80,000 which are currently taking by the deluxe recliner. Thus, income will drop by 80,000 if discontinued.
