COST ACCOUNTING
INFORMATION FOR DECISION MAKING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Albert Company plans to discontinue a division that generates a total contribution margin of $20, 000 per year. Fixed overhead associated with this division is $50, 000, of which $5, 000 cannot be eliminated. If the division is discontinued, how would Albert’s operating income is affected?
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Have no effect on operating income
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Decrease operating income by $15, 000
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Increase operating income by $25, 000
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Increase operating income by $30, 000
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Explanation:
Detailed explanation-1: -If the contribution margin is not sufficient to cover fixed expenses, there will be a net loss for the period.
Detailed explanation-2: -Which of the following is true regarding the contribution margin ratio of a single product company? As fixed expenses decrease, the contribution margin ratio increases. The contribution margin ratio multiplied by the variable expense per unit equals the contribution margin per unit.
Detailed explanation-3: -Answer and Explanation: Answer: B. The break-even point would increase. If the fixed cost would increase, the break-even point would increase.
There is 1 question to complete.