Assume a retailing company has two departments-Department A and Department B. The company's most recent contribution format income statement follows: Department A Department B $ 450,000 $ 350,000 120,000 200,000 230,000 250,000 140,000 260,000 $ 90,000 $ (10,000) Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) The company says that $110,000 of the fixed expenses being charged to Department B are sunk costs or allocated costs that will continue if the segment is discontinued. However, if Department B is discontinued the sales in Department A will drop by 12%. What is the financial advantage (disadvantage) of discontinuing Department B? Multiple Choice O O $(148,000) $(152,000) $(147,600) Total $ 800,000 320,000 480,000 400,000 $ 80,000 $(127,600)
Assume a retailing company has two departments-Department A and Department B. The company's most recent contribution format income statement follows: Department A Department B $ 450,000 $ 350,000 120,000 200,000 230,000 250,000 140,000 260,000 $ 90,000 $ (10,000) Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) The company says that $110,000 of the fixed expenses being charged to Department B are sunk costs or allocated costs that will continue if the segment is discontinued. However, if Department B is discontinued the sales in Department A will drop by 12%. What is the financial advantage (disadvantage) of discontinuing Department B? Multiple Choice O O $(148,000) $(152,000) $(147,600) Total $ 800,000 320,000 480,000 400,000 $ 80,000 $(127,600)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Assume a retailing company has two departments-Department A and Department B. The company's most recent contribution format income statement follows:
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income (loss)
Multiple Choice
O
The company says that $110,000 of the fixed expenses being charged to Department B are sunk costs or allocated costs that will continue if the segment is discontinued. However, if Department B is
discontinued the sales in Department A will drop by 12%. What is the financial advantage (disadvantage) of discontinuing Department B?
O
O
O
$(148,000)
$(152,000)
$(147,600)
Total
$ 800,000
320,000
$(127,600)
480,000
400,000
$ 80,000
Department A Department B
$ 350,000
$ 450,000
120,000
200,000
230,000
250,000
260,000
140,000
$ 90,000 $ (10,000)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe1f48b3a-5c3c-43f8-bcd4-ccb130225250%2Fe9adeab4-9ba6-48f1-80f4-6803d81a96f6%2Fw1b5acc_processed.png&w=3840&q=75)
Transcribed Image Text:Assume a retailing company has two departments-Department A and Department B. The company's most recent contribution format income statement follows:
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income (loss)
Multiple Choice
O
The company says that $110,000 of the fixed expenses being charged to Department B are sunk costs or allocated costs that will continue if the segment is discontinued. However, if Department B is
discontinued the sales in Department A will drop by 12%. What is the financial advantage (disadvantage) of discontinuing Department B?
O
O
O
$(148,000)
$(152,000)
$(147,600)
Total
$ 800,000
320,000
$(127,600)
480,000
400,000
$ 80,000
Department A Department B
$ 350,000
$ 450,000
120,000
200,000
230,000
250,000
260,000
140,000
$ 90,000 $ (10,000)
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