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Vanik Corporation currently has two divisions which had the following operating results for last year:

\begin{tabular}{lrr}
& Cork Division & Rubber Division \\
Sales & [tex]$\$[/tex] 600,000[tex]$ & $[/tex]\[tex]$ 350,000$[/tex] \\
Variable costs & [tex]$\$[/tex] 350,000[tex]$ & $[/tex]\[tex]$ 130,000$[/tex] \\
Contribution margin & [tex]$\$[/tex] 250,000[tex]$ & $[/tex]\[tex]$ 220,000$[/tex] \\
Traceable fixed costs & [tex]$\$[/tex] 160,000[tex]$ & $[/tex]\[tex]$ 110,000$[/tex] \\
Segment margin & [tex]$\$[/tex] 90,000[tex]$ & $[/tex]\[tex]$ 110,000$[/tex] \\
Allocated common corporate fixed costs & [tex]$\$[/tex] 190,000[tex]$ & $[/tex]\[tex]$ 20,000$[/tex] \\
Net operating income (loss) & [tex]$\$[/tex] (100,000)[tex]$ & $[/tex]\[tex]$ 90,000$[/tex] \\
\end{tabular}

If the Rubber Division was dropped at the beginning of last year, the financial advantage (disadvantage) to the company for the year would have been:

A. [tex]$(\$[/tex] 20,000)[tex]$
B. $[/tex]\[tex]$ 20,000$[/tex]
C. [tex]$\$[/tex] 25,000[tex]$
D. $[/tex](\[tex]$ 25,000)$[/tex]



Answer :

GinnyAnswer
To solve this problem, we need to analyze the financial impact of dropping the Rubber Division on the overall company. We start by focusing on the key components provided, mainly the segment margin and the traceable fixed costs associated with the Rubber Division.

1. Segment Margin of Rubber Division:
The segment margin is the amount left after subtracting all costs traceable to the Rubber Division from its contribution margin. According to the data provided, the segment margin for the Rubber Division is [tex]$110,000. 2. Traceable Fixed Costs: These are the fixed costs that are directly attributable to the Rubber Division. According to the provided table, the traceable fixed costs of the Rubber Division are $[/tex]130,000.

3. Calculate the Financial Impact:
The financial impact of dropping the Rubber Division can be determined by comparing the segment margin (the income generated by the division) against the traceable fixed costs (the costs saved by dropping the division).

The financial impact is calculated as:
[tex]\[ \text{Financial Impact} = \text{Segment Margin} - \text{Traceable Fixed Costs} \][/tex]

Plugging in the numbers from the given data:
[tex]\[ \text{Financial Impact} = 110{,}000 - 130{,}000 = -20{,}000 \][/tex]

4. Interpret the Result:
A result of [tex]\(-20{,}000\)[/tex] means that dropping the Rubber Division would create a financial disadvantage of [tex]\( \$20{,}000 \)[/tex] for Vanik Corporation.

Thus, the financial disadvantage to the company for the year by dropping the Rubber Division would be [tex]\(-\$20{,}000\)[/tex]. Therefore, the correct answer from the multiple-choice options provided is:
[tex]\[ (\$20{,}000) \][/tex]

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