Question

Question 25

Fabri Corporation is considering eliminating a department that has an annual contribution margin of $33,000 and $66,000 in annual fixed costs. Of the fixed costs, $16,500 cannot be avoided. The annual financial advantage (disadvantage) for the company of eliminating this department would be:

A. ($33000)

B. $33000

C. ($16500)

D. $16500

Answer 1

Avoidable fixed costs = $66,000 - $16,500

Avoidable fixed costs = $49,500

Contribution margin	$   33,000
Less: Avoidable fixed cost	$ (49,500)
Segment margin	$ (16,500)

If the department were eliminated, the company would eliminate the department's negative segment margin of $16,500 and overall net operating income would increase by $16,500 per year

Answer is D

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