Question

abba, inc., is considering dropping a segment. during the prior year, the segment had sales of $207,000 and a contribution margin of $124,000. fixed expenses consist of:

Answer 1

Given the basic data that the segment had sales of $207,000 and a contribution margin of $124,000, the overall net income will decrease by $34,000.

What is a net income?

In accounting, the term "net income" refers to the gross profit minus all other expenses and costs as well as any other income and revenue sources that are not included in gross income. Some of these costs are subtracted from the gross to arrive at net income include interest on debt, taxes and operating expenses or overhead costs.

Given that

Contribution margin =$124,000

Avoidable costs = Salaries $60,000 + Advertising $20,000 + Administrative expenses $10,000

Net operating income = Contribution margin -Avoidable costs

Net operating income = $124,000-($60,000+$20,000+$10,000)

Net operating income= $124,000-$90,000

Net operating income = $34,000 Decrease

Therefore, since the product line is dropped, the overall net operating income will decrease by $34,000.

Missing questions "Salaries $60,000 Rent $50,000 Advertising $20,000 Administrative $35,000 Total Fixed Expenses $165,000 The product line manager's $60,000 salary is avoidable as is the $20,000 of advertising. Of the administrative expenses, $10,000 is avoidable. The rest are general allocated expenses that will not change if the product is dropped. The rent expense is allocated to product lines based on sales and represents a share of the total cost for the building. If this product line is dropped, what will happen to the company's overall net income?

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