Question

Fabri Corporation is considering eliminating a department that has an annual contribution margin of $27,000 and $73,000 in annual fixed costs. Of the fixed costs, $16,500 cannot be avoided. The annual financial advantage (disadvantage) for the company of eliminating this department would be:

Answer 1

Answer:

$29,500

Explanation:

The calculation of annual financial advantage (disadvantage) is shown below:-

If continues

Loss = Contribution - fixed cost

= $27,000 - $73,000

= $46,000 loss

If Eliminates,

Savings = Loss - Fixed cost

= $46,000 - $16,500

= $29,500

Therefore for computing the annual financial advantage (disadvantage) we simply deduct fixed cost from loss.