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Whittlesea Home Services Company is trying to decide whether to delete its Painting Department. The...

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Accounting

Whittlesea Home Services Company is trying to decide whether to delete its Painting Department. The Painting Department's statement of financial performance for the year ended 31 December included the following: sales revenue of $1 000 000, cost of goods sold of $750 000, gross margin of $250 000, selling expenses of $80 000, administrative expenses of $200 000 and net loss of $30 000. Cost of goods sold is 75% variable and 25% fixed. If the department closes, 80% of the fixed cost of goods sold is avoidable. All of the selling expenses relate to the Painting Department and would be eliminated if the Painting Department is eliminated. Of the administrative expenses, 30% are avoidable costs. If the Painting Department is closed, Whittlesea Home Services Company's income would:

Select one: decrease by $147 500 decrease by $437 500 increase by $290 000. increase by $30 000.

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