Question
. Consider the following portion of a segmented income statement for the year just ended. Assume that the total fixed expenses of Division X include
. 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. Sales $ 100,000 Variable expenses 60,000 Contribution Margin $ 40,000 Fixed expenses 50,000 Operating income (loss) $ (10,000) 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)
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