2C2L FOLLOWING ARE THE OPERATING RESULTS OF THE TWO SEGMENTS OF PARKL...

254.

CSO: 2C2f

LOS: 2C2l

Following are the operating results of the two segments of Parklin Corporation.

Segment A

Segment B

Total

Sales

$10,000

$15,000

$25,000

Variable costs of goods sold

4,000

8,500

12,500

Fixed costs of goods sold

1,500

2,500

4,000

Gross margin

4,500

4,000

8,500

Variable selling and administrative

2,000

3,000

5,000

Fixed selling and administrative

1,500

1,500

3,000

Operating income (loss)

$ 1,000

$ (500)

$ 500

Variable costs of goods sold are directly related to the operating segments. Fixed costs of

goods sold are allocated to each segment based on the number of employees. Fixed

selling and administrative expenses are allocated equally. If Segment B is eliminated,

$1,500 of fixed costs of goods sold would be eliminated. Assuming Segment B is closed,

the effect on operating income would be

a.

an increase of $500.

b.

an increase of $2,000.

c.

a decrease of $2,000.

d.

a decrease of $2,500.