Fabio Corporation is considering eliminating a department that has a contributio
ID: 2481359 • Letter: F
Question
Fabio Corporation is considering eliminating a department that has a contribution margin of $30,000 and $70,000 in fixed costs. Of the fixed costs, $12,000 cannot be avoided. The effect of eliminating this department on Fabio's overall net operating income would be:
a decrease of $28,000.
an increase of $28,000.
a decrease of $40,000.
an increase of $40,000.
Fabio Corporation is considering eliminating a department that has a contribution margin of $30,000 and $70,000 in fixed costs. Of the fixed costs, $12,000 cannot be avoided. The effect of eliminating this department on Fabio's overall net operating income would be:
Explanation / Answer
Hey Dear Student !!
Net Operating Income with department:
Contribution: $30000
Less Fixed Cost: $70000
Net Operating Income: -$40000
Net Operating Income After Closing the Department:
Unavoidable Fixed Cost: -$12000
Net Operating Income: -$12000
Change in Net Operating Income:
-40000+(-12000)= $28000
So Net Operating Income will Increase by $28000
Pleasure Teaching You !!
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