Fabio Corporation is considering eliminating a department that has a contributio

Question

Fabio Corporation is considering eliminating a department that has a contribution margin of $29,000 and $71,000 in fixed costs. Of the fixed costs, $13,500 cannot be avoided. The effect of eliminating this department on Fabio's overall net operating income would be:

a decrease of $28,500.

a decrease of $42,000.

an increase of $28,500.

an increase of $42,000.

Fabio Corporation is considering eliminating a department that has a contribution margin of $29,000 and $71,000 in fixed costs. Of the fixed costs, $13,500 cannot be avoided. The effect of eliminating this department on Fabio's overall net operating income would be:

Explanation / Answer

Fabio Corporation Effect of department elimination With Department Without Department Contribution Margin                     29,000                             -   Fixed Cost                     71,000                    13,500 Net operating income                   (42,000)                  (13,500) Increase inNet Operating Income=                     28,500 So the net operating Income will increase by :                     28,500

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