The following information relates to next year\'s projected operating results of
ID: 2382243 • Letter: T
Question
The following information relates to next year's projected operating results of the Aluminum Division of DG Corporation:
Contribution margin ............... $1,500,000 Fixed costs............................ $1,700,000 Net loss....................... $ (200,000) The following information relates to next year's projected operating results of the Aluminum Division of DG Corporation: if Aluminum Division is dropped, $1,000,000 of the fixed costs above can be eliminated. What will be the effect on DG's profit next year if Aluminum Division is dropped instead of being kept? $500,000 decrease $700,000 increase $800,000 increase $1,000,000 increase $1,200,000 increase
Explanation / Answer
If Aluminum Division is dropped instead of being kept;
Contribution margin= 0
Fixed costs= $700,000
Net Loss= $700,000
Current Net Loss= $200,000
Diff= -200,000-(-700,000)= 500,000
Therefore, If Aluminum Division is dropped,the DG's profit next year will reduce by $500,000 i.e, Option A is correct
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