Assume that Sara is partly correct in her assessment of the report. Upon further investigation, it is determined that 10 % of the order processing costs and 20 % of the delivery costs would not be avoidable if CRS were to drop Donnelly's. Would CRS benefit from dropping Donnelly's ? Show your calculations.

Question

Business

Faith Burns

Today, 01:58

Assume that Sara is partly correct in her assessment of the report. Upon further investigation, it is determined that 10 % of the order processing costs and 20 % of the delivery costs would not be avoidable if CRS were to drop Donnelly's. Would CRS benefit from dropping Donnelly's ? Show your calculations.

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Answers (1)

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Celia · Answer 1

CRS would not benefit from dropping Donnelly's Pizza because it would lose $43,680 in revenues and save $43,344 in costs resulting in a $336 decrease in operating income.

Explanation:

Difference: Incremental (Loss in Revenues) and Savings in Costs from dropping Donnelly's Pizza:

Revenues $ (43,680)

Cost of goods sold 26,180

Order processing ($14,000 - 10% * $14,000) = 12,600

Delivery ($3,500 - 20% * $3,500) = 2,800

Rush orders 924

Sales calls 840

Total costs 43,444

Effect on operating income (loss)

$ (336)