Teen Co. recently reviewed the profitability of each of its segments The company’s Western Unit projected a loss for the coming period and was shut down. In which one of the following situations would the total company profits of Teen Co. decrease after shutting down the Western Unit?

Answer (A) is correct. This situation would cause Teen’s total company profits to decrease after shutting down the Western Unit. Western Unit would not have a loss if it was not allocated a portion of the home office cost. After shutting down the Western Unit, this cost will continue to be incurred and allocated to other units.