3. The management accountant for the C.R. Groceries has prepared the following s

Question

3. The management accountant for the C.R. Groceries has prepared the
following segmented income statement for the most current year.
Produce Fish & Meat Sundries Total
Sales $80,000 $120,000 $60,000 $220,000
Variable expenses 36,000 65,000 20,000 121,000
Contribution margin 44,000 55,000 40,000 99,000
Other costs 18,000 21,000 8,000 47,000
Segment margin 26,000 34,000 32,000 52,000
Allocated avoidable
costs 2,000 3,000 3,000 8,000
Segment income 24,000 31,000 29,000 44,000
Allocated corporate
costs 7,000 7,000 7,000 21,000
Corporate profit $17,000 $ 24,000 $ 22,000 $ 23,000
If the Fish & Meat department had been discontinued, the short-term effect
on corporate profits would be a decrease of…?

Explanation / Answer

Answer : If the Fish & Meat department had been discontinued, the short-term effect on corporate profits would be a decrease of $ 31,000 ( i.e. equal to Segment income).

Explanation: Corporate costs cannot be reduced and will continue to be incurred and will be allocated to other two remaining segments i.e. Produce & Sundries. So If the Fish & Meat department had been discontinued, corporate profits would be reduced by $ 31,000.

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