Beryl Enterprise is considering closing down its Jamaica location.This location presently has a contribution margin of $1,000,000.Overhead allocated to it is $2,500,000,of which $250,000 cannot be eliminated.If this location were to discontinue operations,by what amount would Beryl's pre-tax income increase?
A) $250,000.
B) $1,000,000.
C) $1,250,000.
D) $1,500,000.

Question

Quizplus · Accepted Answer

If the location is closed, Beryl would lose the $1,000,000 contribution margin but save $2,250,000 in overhead costs ($2,500,000 - $250,000). The net effect would be an increase in pre-tax income of $1,250,000 ($2,250,000 - $1,000,000).

Beryl Enterprise Is Considering Closing Down Its Jamaica Location