Question

Cliff Corporation is considering eliminating a department that has annual sales of $86,000, variable costs of $40,000, and annual fixed costs of $60,000. Of the fixed costs, $10,000 cannot be avoided. The annual financial advantage (disadvantage) for the company of eliminating this department would be _______.

Multiple Choice

• ($36,000)

• $4,000

• ($4,000)

• $36,000

Answer 1

Answer
The correct option is B : $ 4000
Explanation
	Department Before Eliminating	Department After Eliminating	Advantage
Contribution Margin	$                46,000
Fixed Overhead	$                60,000	$          10,000
Net Loss	-$               14,000	-$         10,000	$            4,000
Contribution Margin =86000-60000= $ 46000