1. The following information relates to next year\'s projected operating results
ID: 2525836 • Letter: 1
Question
1.
The following information relates to next year's projected operating results of the Consumer Division of Nampa Corporation:
Contribution margin
$1,800,000
Fixed expenses
2,100,000
Net operating loss
($300,000)
If the Consumer Division is eliminated, $1,600,000 of the above fixed expenses could be avoided. What will be the effect on Nampa's profit next year if Consumer Division is eliminated?
A.
$300,000 decrease
B.
$300,000 increase
C.
$200,000 decrease
D.
$200,000 increase
1.
The following information relates to next year's projected operating results of the Consumer Division of Nampa Corporation:
Contribution margin
$1,800,000
Fixed expenses
2,100,000
Net operating loss
($300,000)
If the Consumer Division is eliminated, $1,600,000 of the above fixed expenses could be avoided. What will be the effect on Nampa's profit next year if Consumer Division is eliminated?
A.
$300,000 decrease
B.
$300,000 increase
C.
$200,000 decrease
D.
$200,000 increase
Explanation / Answer
Unavoidable fixed expenses=($2,100,000-$1,600,000)=$500,000
Hence net operating loss would be $500,000 as a result of elimination of the Consumer Division.
Hence effect on profit=decrease in profits=($500,000-$300,000)=$200,000(C).
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