Reference no: EM132793815

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 (income)                      190,000              20,000

Allocated common corporate fixed costs    80,000                  45,000

Net operating income (loss)                      $110,000                (25,000)

Problem 1: 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 is dropped, the financial advantage (disadvantage) to the company for the year would be:

A) $20,000

B) ($25,000)

C) ($20,000)

D) $25,000