The Milham Corporation has two divisions—East and West. The divisions have the following revenues and expenses: East Wes

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The Milham Corporation has two divisions—East and West. The
divisions have the following revenues and expenses:
East West
Sales
$720,000
$350,000
Variable costs 370,000 240,000
Traceable fixed costs 130,000
80,000
Allocated common fixed costs
120,000 50,000
Net operating income (loss) 100,000 $(20,000)
Management at Milham is considering the elimination of the West
Division. If the West Division were eliminated, all of the
traceable fixed costs of the West Division would be avoided, but
none of the allocated common fixed costs of the West Division would
be avoided (since total common fixed costs would be unaffected by
this decision). If the West Division were eliminated, sales at the
East division would increase by 15%. Given these data, what would
be the impact of the elimination of the West Division on the
company’s net operating income?
The company’s net operating income will decrease by $82,500
The company’s net operating income will increase by $22,500
The company’s net operating income will increase by $20,000
The company’s net operating income will decrease by $30,000