Scoff's statement of operations for the last quarter follows:
Profit/Loss Last Quarter
Outside 75 275
Variable costs 260
Fixed costs 15
Allocated corporate overhead 40 315
Net income (loss)before taxes ($40)
1. Worldwide paint has the policy of transferring all products internally at variable cost. In scoffs case variable cost is 80% of the market price.
2. All of Scoff's case fixed costs are avoidable cash flows if it is closed or sold.
3. Of the allocated corporate overhead 10% is caused by the presence of scoff and will be avoided if scoff is closed or sold.
Should the Scoff Division be closed?
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