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, $50,000 cannot be avoided. The annual financial advantage (disadvantage) for the company of eliminating this department would be: a. $10,000 b. ($10,000)c. $30,000 d. ($30,000) e. None of the above. The answer is:_________.

Answer 1

Answer:

The correct answer is D.

Explanation:

Giving the following information:

Annual contribution margin of $80,000 and $160,000 in annual fixed

costs.

Of the fixed costs, $50,000 cannot be avoided.

To calculate the financial impact on income, we need to use the following formula:

Effect on income= avoidable fixed costs - contribution margin

Effect on income= 50,000 - 80,000

Effect on income= -$30,000