Barley Enterprises Inc. expects its three departments to yield the following inc

Question

Barley Enterprises Inc. expects its three departments to yield the following income for next year.
Sales Dept. D Dept. E Dept. F
Expenses $5,000 $10,000 $4,000
Avoidable 3,000 2,000 5,000
Unavoidable 4,000 4,000 1,000
Total expenses 7,000 6,000 6,000
Net income (loss) $(2,000) $4,000 $(2,000)

Which of the following statements is true regarding Flower's business segments?
If Dept. F is eliminated, overall profit will increase by $2,000.
Overall profit will decline no matter which of these segments is eliminated.
If Dept. E is eliminated, overall profit will decline $4,000.
$If Dept. D is eliminated, overall profit will decrease by $2,000.
Eliminating Dept. F will reduce overall profit more than eliminating Dept. D.

Explanation / Answer

Answer: If Dept. D is elimiated, overall profit will decrease by $2,000. Because: If D is eliminated net income will decrease by 5,000 - 3,000 = 2,000

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