DJH Enterprises has 3 departments. Operating results for 2019 are as follows:
DJH is considering eliminating the departments that show losses. Assume that the direct fixed expenses could be avoided if the department is eliminated.
What effect would elimination of Department 3 have on DJH's total operating income?
A) It would increase total operating income by $3,000.
B) It would increase total operating income by $94,000.
C) It would decrease total operating income by $254,000.
D) It would decrease total operating income by $91,000.
E) None of the above.

Question

DJH Enterprises has 3 departments. Operating results for 2019 are as follows:
 DJH is considering eliminating the departments that show losses. Assume that the direct fixed expenses could be avoided if the department is eliminated.
What effect would elimination of Department 3 have on DJH's total operating income?
A) It would increase total operating income by $3,000. 
B) It would increase total operating income by $94,000. 
C) It would decrease total operating income by $254,000. 
D) It would decrease total operating income by $91,000. 
E) None of the above.

Quizplus · Accepted Answer

Contribution margin less Direct fixed expenses = Contribution toward common expenses
= $254,000 - $163,000 = $91,000
Elimination of Department 3 would result in a decrease in operating income of $91,000.

DJH Enterprises Has 3 Departments