Wedding Supply is trying to decide whether or not to continue distributing reception supplies.The following information is available for Wedding Supply's business segments. $\begin{array}{lrrr}&\text { Reception Supplies }&\text { Bridal Dresses }&\text { Floral Decorations }\
\hline
\text { Sales } & \$ 160,000 & \$ 110,000 & \$ 210,000 \
\text { Variable costs } & 84,000 & 50,000 & 120,000\\text { Contribution margin } & 76,000 & 60,000 & 90,000 \
\text { Direct fixed costs } & 50,000 & 20,000 & 25,000 \
\text { Allocated common fixed costs } & 30,000 & 25,000 & 30,000 \\text { Net income }&(\$4,000)&\$15,000&\$35,000
\end{array}$ If reception supplies are dropped, what change will occur to profit?
A)Decrease by $26,000
B)Decrease by $76,000
C)Increase by $4,000
D)None of these answer choices are correct.

Question

Quizplus · Accepted Answer

If reception supplies are dropped, the company will save $50,000 in variable costs and $50,000 in direct fixed costs. However, the company will also lose $76,000 in contribution margin. Therefore, the net effect on profit will be a decrease of $26,000.

Wedding Supply Is Trying to Decide Whether or Not to Continue