Question

A segment has the following data: Sales $720000 Variable expenses 310000 Fixed expenses 550000 What will be the incremental effect on net income if this segment is eliminated, assuming the fixed expenses will be allocated to profitable segments? Cannot be determined from the data provided a. $410000 increase b. $5167 decrease c. $410000 decrease

Answer 1

Answer:

The net income will be decreased by $410,000.

Explanation:

Net Income: The resultant amount after reducing all expenses of the company whether direct or indirect for the period from all revenues is termed as net income.

Sales: Sale of any goods or services can be made on a cash or credit basis. The amount receivable on sale can either be received immediately in cash or such a payment can be received at some future date. In case of sale is being made on a credit basis the company maintains an account of such customer in its books as Debtor or Accounts Receivable.

Expenses: It is the amount incurred by the organization to generate revenue. It is shown in the income statement as the debit side.

Variable cost: This is the cost which directly varies with a change in sales. It means to increase/ decrease in sales revenue will have a direct effect on variable cost. There is a linear relation between sales and variable cost.

This cost remains fixed per unit but changes in totality. Examples of variable cost are the cost of raw material purchased, direct wages, etc.

Fixed Costs: It is the cost that remains the same irrespective of the level of production in the firm.  It remains constant throughout the production. It is a part of the total cost to run a business along with the variable cost.

Contribution Margin: It represents the excess of sales over its variable cost. It judges whether the company is able to cover its variable cost and contributes towards the fixed cost .The net income will be decreased by $410000 decrease