Department B of the local Top Value Store shows a contribution to common expense

Question

Department B of the local Top Value Store shows a contribution to common expenses of $22,000 and a net loss of $9,000 (before taxes). The firm believes that discontinuing department B will not affect sales, gross profit, or traceable expenses of other departments. If total common expenses remain unchanged, what effect will discontinuing department B have on the income before taxes of the Top Value Store?

Use a negative number to indicate a decrease in net income or a positive number to indicate an increase.

Answer:

Explanation / Answer

As per my understanding, if discontinuing of Department B will not gona reduce Common expenses i.e. 22000 then there will be no change in Net loss i.e. 9000 before taxes.

But if discontinuing of Department B will gona reduce 22000 to Nil then profit of the value store will gona increase by 13000 i.e. 22000-9000.

I hope above will help you to understand but still if you have any doubt please let me know

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