Question

The most recent income statement for the Chicago Branch of Illinois State Bank is presented below: Sales $65,000 Variable costs 32,000 Contribution margin 33,000 Avoidable fixed costs 14,000 Unavoidable fixed costs 22,000 Operating loss $(3,000) Illinois State Bank is thinking about eliminating the Chicago Branch. If the branch is eliminated, Illinois State Bank's operating income will ________.

Answer 1

Answer:

Operating income will be decreased by $19,000

Explanation:

Prior to elimination of Chicago branch Loss = $3,000

After eliminating chicago branch (Unavaoidable fixed costs will still be incurred) loss = $22,000

Difference = $3,000 - $22,000 = $19,000(decrease)