Answer:
Effect on income= $18,500 increase
Explanation:
Giving the following information:
Contribution margin= $37,000
Fixed costs= $74,000
Unavoidable fixed costs= $18,500
<u>We will consider only the avoidable fixed costs:</u>
Avoidable fixed costs= 74,000 - 18,500= $55,500
Current loss= 37,000 - 55,500= -$18,500
<u>Now, the effect on the income of eliminating the department:</u>
Effect on income= current loss + contribution margin
Effect on income= -18,500 + 37,000
Effect on income= $18,500 increase