Question

Wallen Corporation is considering eliminating a department that has an annual contribution margin of $80,000 and $160,000 in annual fixed costs. Of the fixed costs, $90,000 cannot be avoided. The annual financial advantage (disadvantage) for the company of eliminating this department would be:

Answer 1

Answer:

-$10,000

Explanation:

For computing the annual financial advantage or disadvantage, we have to determine the net income or loss  in both cases which are shown below:

In the first case

Net income or loss = Annual contribution margin - annual fixed cost

                   = $80,000 - $160,000

                   = $80,000

And, the net income with fixed cost is $90,000

So, the financial disadvantage would be

= $80,000 - 90,000

= -$10,000