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The solution is to calculate operating income before corporate overhead allocation. The complexes with operating losses need to be sold because they are not contributing anything to covering corporate overhead. Complex Four is not the only complex with an operating loss.
The solution is to calculate operating income before corporate overhead allocation. The complexes with operating losses need to be sold because they are not contributing anything to covering corporate overhead.
The solution is to calculate operating income before corporate overhead allocation. The complexes with operating losses need to be sold because they are not contributing anything to covering corporate overhead. Complex Three has an operating income and should not be sold.
ABD Realty needs to analyze the contribution per complex before corporate overhead. This is done to see which complex is able to cover its own operating expenses. It would be best to allocate this corporate overhead based on total Rental Income of $7,500. ABD Realty Summary Income Statements (in thousands) One Two Three Four Five Total Rental income $1,000 $1,210 $2,347 $1,878 $1,065 $7,500 % of total 13.33% 16.14% 31.29% 25.04% 14.20% Overhead allocated $160 $194 $375 $301 $170 $1,200 The next step is to add back the corporate overhead allocation to the individual segment operating profit to see operating income per complex exclusive of the corporate overhead allocation. Profit + Total Overhead Allocation = Operating income ABD Realty Summary Income Statements (in thousands) One Two Three Four Five Profit $ 200 $ (90) $ (253) $ (522) $ (235) Plus: Overhead allocated 160 194 375 301 170 Operating income $ 360 $ 104 $ 122 $(221) $(65) Based on the above information, complexes Four and Five are still operating at a loss, so therefore, need to be sold.