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The following information relates to next year's projected operating results of the Consumer Division of Xampa...

The following information relates to next year's projected operating results of the Consumer Division of Xampa Corporation: Contribution margin $1,800,000 Fixed expenses 2,100,000 Net operating loss ($300,000) If the Consumer Division is eliminated, $1,600,000 of the above fixed expenses could be avoided. What will be the effect on Xampa's profit next year if Consumer Division is eliminated? $300,000 decrease

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Answer #1
Statement showing effect on Net Income if Consumer division is eliminated:
Contribution margin foregone $           -18,00,000
Add:Avoidable Fixed Costs $            16,00,000
Decrease in Net Income $             -2,00,000
So there will be a decrease in Net Income of $200,000
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