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 $10,000 per year.
B) increase by $10,000 per year.
C) decrease by $25,000 per year.
D) increase by $25,000 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 net operating income.

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