Vanik Corporation currently has two divisions which had the following operating results for last year:

Vanik Corporation currently has two divisions which had the following operating results for last year:

	Cork Division			Rubber Division
Sales	$	600,000		$	350,000
Variable costs		250,000			220,000
Contribution margin		350,000			130,000
Traceable fixed costs		160,000			110,000
Segment margin		190,000			20,000
Allocated common corporate fixed costs		80,000			45,000
Net operating income (loss)	$	110,000		$	(25,000	)

Because the Rubber Division sustained a loss, the president of Vanik is considering the elimination of this division. All of the division’s traceable fixed costs could be avoided if the division was dropped. None of the allocated common corporate fixed costs could be avoided. If the Rubber Division was dropped at the beginning of last year, the financial advantage (disadvantage) to the company for the year would have been: 

Multiple Choice

• ($20,000)

  Correct
• $20,000
• $25,000
• ($25,000)

Explanation

If the Rubber Division had been eliminated, Vanik would have lost its segment margin of $20,000. Consequently, overall net operating income would have been $20,000 lower.