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Discuss allocating the company''s fixed overheads

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DSQ Company Ltd, a diversified company, has three divisions, cement, fertilizers and textiles. The summary of the company's profit is given below : (Rs/Crore)

Cement Fertilizer Textiles Total
Sales 20.0 12.0 18.0 50.0
Less : Variable Cost 8.0 9.6 5.4 23.0
Contribution 12.0 2.4 12.6 27.0
Less : Fixed Cost (allocated to
divisions in proportion to
volumes of Sales)
8.0 4.8 7.2 20.0
Profit (Loss) 4.0 (2.4) 5.4 7.0

After allocating the company's fixed overheads to products the Fertilizers, division incurs a loss of Rs 2.4 crore. Should the company drop this division?

Reference no: EM131767468

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