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What is incremental effect on the profit or loss of company

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Question - Lucy Ltd has three divisions which are in competition with each other, selling slightly different products. Annual results (including per unit sales) show:

 

Division A

Division B

Division C

Sales

6,000@$20

10,000@$14

14,000@$15

Variable costs

$8 per unit

$6 per unit

$8 per unit

Fixed costs

$11,000

$48,000

$15,000

The company believes that if it drops Division B, sales of Division A will increase by 3000 units and sales of Division C by 2000 units. Analysis reveals that $36,000 of fixed costs relating to Division B are avoidable for the company if Division B is closed.

Required - What is the incremental effect on the profit/loss of the company if it closes Division B? Please show all calculations.

Reference no: EM133176813

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