Molina Medical Supply Company is trying to decide whether or not to continue dis

Question

Molina Medical Supply Company is trying to decide whether or not to continue distributing hospital supplies. The following information is available for Molina%u2019s business segments. Assume that all direct fixed costs could be avoided if a segment is dropped and that the total common fixed costs would remain unchanged if a segment is dropped.

Assume that if hospital supplies were dropped, retail store sales would increase by 25%. What would the impact on overall profitability be if the %u201CHospital Supplies%u201D segment is eliminated?

Income would increase by $54,000.

Income will increase by $104,000.

Income will increase by $14,000.

Income will increase by $60,000.

Hospital Supplies Retail Stores Mail Order Sales $120,000 $440,000 $360,000 Variable costs 64,000 200,000 140,000 Contribution Margin 56,000 240,000 220,000 Direct Fixed Costs 50,000 80,000 90,000 Allocated common fixed costs 20,000 70,000 60,000 Net Income ($ 14,000) $ 90,000 $ 70,000

Explanation / Answer

Income will increase by $14,000.

correct 100%   

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