Molina Medical Supply Company is trying to decide whether or not to continue dis
ID: 2376702 • Letter: M
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.
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
If hospital supplies are dropped, what would happen to profit?
a. Decrease by $6,000.
b. Decrease by $114,000.
c. Increase by $14,000.
d.
Increase by $76,000.
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
70000+14000-20000=64000
so decrease by 6000....
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