A study has been conducted to determine if one of the departments in Parry Company should be discontinued. The contribution margin in the department is $50,000 per year. Fixed expenses charged to the department are $65,000 per year. It is estimated that $40,000 of these fixed expenses could be eliminated if the department is discontinued. These data indicate that if the department is discontinued, the company's overall net operating income would:
A) decrease by $25,000 per year
B) increase by $25,000 per year
C) decrease by $10,000 per year
D) increase by $10,000 per year

Question

Quizplus · Accepted Answer

If the department is discontinued, the company would lose the $50,000 contribution margin but save $40,000 in fixed expenses, resulting in a net decrease of $10,000 in overall net operating income.

A Study Has Been Conducted to Determine If One of the Departments