Assume a retailing company has two departments-Department A and Department B. The income statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Multiple Choice Total $ 800,000 320,000 480,000 400,000 $ 80,000 $(128,000) Department A Department B $ 450,000 200,000 250,000 260,000 The company says that $130,000 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 7%. What is me financial advantage (disadvantage) of discontinuing Department B? $ 350,000 120,000 230,000 140,000 $ 90,000 $ (10,000)
Assume a retailing company has two departments-Department A and Department B. The income statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Multiple Choice Total $ 800,000 320,000 480,000 400,000 $ 80,000 $(128,000) Department A Department B $ 450,000 200,000 250,000 260,000 The company says that $130,000 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 7%. What is me financial advantage (disadvantage) of discontinuing Department B? $ 350,000 120,000 230,000 140,000 $ 90,000 $ (10,000)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Multiple Choice
$(128,000)
$(132,000)
$(156,100)
$(136,100)
K
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
Total
$ 800,000
320,000
480,000
400,000.
$ 80,000
$(128,000)
Department Department
B
A
$ 350,000
120,000
$ 450,000
200,000
230,000
140,000
$ 90,000 $ (10,000)
The company says that $130,000 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 7%. What is
the financial advantage (disadvantage) of discontinuing Department B?
250,000
260,000
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