Unavoidable headquarters indirect costs of $1,540,000 are allocated to divisions on the basis on divisional revenue. Total costs including headquarters costs and direct divisional costs amounts to $6,226,000. The portion of the total costs that are direct costs can be avoided if a division is closed.
Weingart Home Health Operating Results for the Year Ended November 30, 2011
total north south east west
revenue 6600000 990000 2640000 990000 1980000
total costs 6226000 572000 2090000 1276000 2288000
profit (loss) 374000 418000 550000 (286000) (308000)
Based on contribution margin analysis, which division(s) of the Weingart Home Health Agency, if any, should be closed in the short term? . (Hint: You need to determine what the division’s direct costs are to determine the answer.