Question

Carns Company is considering eliminating its Small Tools Division, which reported a loss for the prior year of $215,000 as shown below.
Segment Income (Loss)
Sales $ 1,440,000
Variable costs 1,305,000
Contribution margin 135,000
Fixed costs 350,000
Income (loss) $ (215,000)
If the Small Tools Division is dropped, all of its variable costs are avoidable, and $105,000 of its fixed costs are avoidable. The impact on Carnsâs income from eliminating the Small Tools Division would be:
Multiple Choice
$63,500 decrease
$30,000 decrease
$350,000 decrease
$30,000 increase
$105,000 decrease

Answer 1

Carns Company is considering eliminating its Small Tools Division, which reported a loss for the prior year of $215,000 as shown below $30,000 decrease.

Contribution margin or dollar contribution per unit is the selling price per unit minus the variable cost per unit. "Contribution" represents the portion of sales that is not consumed by variable costs and contributes to covering fixed costs.

This is an accounting term that helps business owners and managers track the profitability of their products. Understanding contribution margin is important. Because the contribution margin shows how much of the product's sales cover the fixed costs and contribute to the company's profit.

This is an accounting term that helps business owners and managers track the profitability of their products. Understanding contribution margin is important. Because the contribution margin shows how much of the product's sales cover the fixed costs and contribute to the company's profit.

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