The most recent income statement for the Strongsville Branch of the July Company is presented below. $\begin{array}{lr}
\text { Sales } & \$ 57,000 \
\text { Variable costs } & 31,500 \
\text { Contribution margin } & \$ 25,500 \
\text { Fixed costs: } & \
\text { Avoidable } & 13,500 \
\text { Unavoidable } & 20,000\
\text { Operating income }&\$8,000
\end{array}$ The July Company is thinking of eliminating the Strongsville Branch because it is showing a loss.If the Strongsville Branch is eliminated, July's operating income will _____.
A)increase $8,000
B)decrease $12,000
C)decrease $31,500
D)not change

Question

Quizplus · Accepted Answer

Eliminating the Strongsville Branch would remove its contribution margin of $25,500 but save only the avoidable fixed costs of $13,500. The difference ($25,500 - $13,500 = $12,000) would decrease July's operating income, not considering the unavoidable fixed costs that would remain.

The Most Recent Income Statement for the Strongsville Branch of the July