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    Closing a division

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    Baldwin Division earns a contribution margin of $200,000 and has a division margin of $70,000. If Baldwin Division is closed, the firm can eliminate all of the direct division expenses and $110,000 of common expenses. These facts indicate that closing the division will cause the firm's operating income to:
    Increase by $90,000.
    Decrease by $90,000.
    Increase by $40,000.
    Decrease by $40,000.

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    The direct expenses for Baldwin Division are ...

    Solution Summary

    The solution explains the effect on operating income of closing a division.