The Cook Co. has two divisions, Eastern and Western. The divisions have the following revenue and expenses:
|
Eastern |
Western |
|
|
€ |
€ |
|
|
Sales |
550,000 |
500,000 |
|
Variable costs |
275,000 |
200,000 |
|
Divisional fixed costs |
180,000 |
150,000 |
|
Allocated corporate costs |
170,000 |
135,000 |
The management of Cook is considering the closure of the Eastern division sales office. If the Eastern division were closed, the fixed costs associated with this division could be avoided but allocated corporate costs would continue.
Given this data:
- Calculate the effect on Cook Co.’s operating profit before and after the closure.
- Should the Eastern division be closed?
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