DOLLY COMPANY HAS 3 DIVISIONS

35. Dolly Company has 3 divisions: R, S, and T. Division R's income statement shows the

following for the year ended December 31:

Sales P1,000,000

Cost of goods sold (800,000)

Gross profit P 200,000

Selling expenses P100,000

Administrative expenses 250,000 (350,000)

Net loss P (150,000)

Cost of goods sold is 75 percent variable and 25 percent fixed. Of the fixed costs, 60

percent are avoidable if the division is closed. All of the selling expenses relate to the

division and would be eliminated if Division R were eliminated. Of the administrative

expenses, 90 percent are applied from corporate costs. If Division R were eliminated, Dolly’s

income would

a. increase by P150,000. c. decrease by P155,000.

b. decrease by P 75,000. d. decrease by P215,000.