Reference no: EM132529585

Tim Luke, controller for Turn Knob Distributing, has prepared the following financial information for the most recent period showing profitability of its three departments:

                                                   Department A                   Department B                                 Department C

Sales                                      $52,000                           $18,000                           $20,000

Variable expenses                    36,000                                10,000                              14,000

Contribution Margin                       16,000                                8,000                               6,000

Fixed expenses:

Factory rent                                2,000                                1,400                                     3,200

Depreciation                                  2,000                                     600                                2,600

Utilities                                           1,800                                     1,000                            1,200

Total fixed expenses                            5,800                                      3,000                         7,000

Operating income                                 $10,200                                     $5,000                    ($1,000)

• The factory rent of $3,200 assigned to Department C is avoidable if the department is eliminated. Depreciation will remain unchanged if a department is dropped. Discontinuing Department C will reduce the utilities by $600.

Question 1: Provide an analysis showing whether Department C should be eliminated.