The operations of winston corporation are divided into the blink division and the blur division. projections for the next year are as follows: blink division blur division total sales $ 335,000 $ 189,000 $ 524,000 variable costs 109,000 88,000 197,000 contribution margin $ 226,000 $ 101,000 $ 327,000 direct fixed costs 95,000 81,000 176,000 segment margin $ 131,000 $ 20,000 $ 151,000 allocated common costs 50,000 42,500 92,500 operating income (loss) $ 81,000 $ (22,500 ) $ 58,500 operating income for winston corporation, as a whole, if the blur division were dropped would be:

Income StatementTotal

Total Net Sales$ 335,000

Variable Cost-$ 109,000

Operating Income$ 226,000

Direct Fixed Costs-$ 176,000

Income Before Tax Expenses$ 50,000

Allocated Common Cost-$ 92,500

Net Income-$ 42,500

Explanation:

When the Blur Division it's dropped the company has a worst operating income because of the fixed costs and the common costs.

The common cost are those that can't be allocated only to one segment of the business, for example, the cost of rent for a production facility, it's a cost that can´t allocated just to one product line, but if you close one line of business the all costs goes to the segment business remaining.

With fixed costs it's the same situation, when you have more than one product line, the total cost are share by all the products line but if you drop one , the fixed costs are share between less products but the same value.

The situation it's a worst operating income that if the Blur Division keep operating.

WITH BLUR OPERATIONS

Income StatementBlinkBlurTotal

Total Net Sales$ 335,000$ 189,000$ 524,000

Variable Cost-$ 109,000-$ 88,000-$ 197,000

Operating Income$ 226,000$ 101,000$ 327,000

Direct Fixed Costs-$ 95,000-$ 81,000-$ 176,000

Income Before Tax Expenses$ 131,000$ 20,000$ 151,000

Allocated Common Cost-$ 50,000-$ 42,500-$ 92,500

Net Income$ 81,000-$ 22,500 $ 58,500

WITHOUT BLUR OPERATIONS.

Income StatementBlinkBlurTotal

Total Net Sales$ 335,000$ 0,000$ 335,000

Variable Cost-$ 109,000$ 0,000-$ 109,000

Operating Income$ 226,000$ 0,000$ 226,000

Direct Fixed Costs-$ 95,000-$ 81,000-$ 176,000

Income Before Tax Expenses$ 131,000-$ 81,000$ 50,000

Allocated Common Cost-$ 50,000-$ 42,500-$ 92,500

Net Income$ 81,000-$ 123,500 -$ 42,500

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