21. Consider the following portion of a segmented income statement for the year

Question

21. Consider the following portion of a segmented income statement for the year just ended. Assume that the total fixed expenses of Division X include $30,000 of expenses that can be avoided if the division is discontinued and that the remaining fixed expenses are common allocated overhead costs that are unavoidable regardless of whether the division is discontinued or not. Division X 100,000 Sales Variable expenses Contribution Margin Fixed expenses Operating income (loss) 40,000 What would be the effect on the firm's operating income if Division X were discontinued/dropped? (state whether it would be an increase or decrease, and by how much)

Explanation / Answer

If Division X is discontinued loss of contribution margin -40,000 Saving in fixed cost 30,000 Decrease in firm's operating income -10,000 answer

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