The most recent income statement for the Midwest Branch of Third Financial Bank

Question

The most recent income statement for the Midwest Branch of Third Financial Bank is presented below:

Sales                                                      $57,000

Variable costs                                           31,500

Contribution margin                                25,500

Avoidable fixed costs                               13,500

Unavoidable fixed costs                            18,000

Operating loss                                       $(6,000)

Third Financial Bank is thinking about eliminating the Midwest Branch. If the branch is eliminated, Third Financial Bank's operating income will ________.

A) increase by $6,000

B) increase by $13,500

C) decrease by $12,000

D) decrease by $25,500

Explanation / Answer

Decrease in Operating income=Contribution margin lost-Avoidable fixed costs = 25500-13500 = $12000 Option C decrease by $12,000 is correct

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