Reference no: EM131698847

Question - Olson Company has three departments. Data for the most recent year is presented below:

           Dept. C   Dept. A  Dept. T

 Sales $4,000 $1,920 $2,240

Variable expenses 3,280 1,420 520

Unavoidable fixed expenses 480 180 440

Avoidable fixed expenses 555 265 360

Operating income (loss) $(315) $55 $920

Olson Company is considering eliminating Dept. C because it is operating at a loss.

Required:

1. Compute the change in operating income if Olson Company eliminates Dept. C and does not replace it.

2. Compute the change in operating income if Olson Company eliminates Dept. C and doubles the sales of Dept. T without increasing fixed costs.