A study has been conducted to determine if one of the departments in Parry Compa
ID: 2428223 • Letter: A
Question
A study has been conducted to determine if one of the departments in Parry Company should be discontinued. The contribution margin in the department is $50,000 per year. Fixed expenses charged to the department are $65,000 per year. It is estimated that $40,000 of these fixed expenses could be eliminated if the department is discontinued. These data indicate that if the department is discontinued, the company's overall net operating income would:decrease by $25,000 per year
increase by $25,000 per year
decrease by $10,000 per year
increase by $10,000 per year
Explanation / Answer
Contribution Margin if eliminated $(50,000) Fixed costs that can be avoided +40,000 Net Decrease in Net Operating Income =$(10,000)
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