Answer:
Walls Corporation
Consumer division
The effect on Wall's profit next year if Consumer Division is eliminated is
a reduction of the profit by $200,000.
Explanation:
a) Data and Calculations:
Contribution Margin = $1,900,000
Fixed Expenses 2,200,000
Avoidable fixed expenses $1,700,000
Unavoidable fixed expense $500,000 ($2,200,000 - $1,700,000)
Reduction in profit:
Contribution Margin = $1,900,000
Avoidable fixed expenses $1,700,000
Reduction in profit = $200,000
b) Unavoidable fixed expenses are the costs that Walls must incur if it wants to stay in business. They cannot be eliminated even if Walls Corporation eliminates the Consumer division. Rent is an example of the costs that Walls cannot avoid if it discontinues the operations of its Consumer division. Most unavoidable fixed costs are not traceable to the division.
