The following information relates to next year's projected operating results of the Children's Division of Grunge Clothing Corporation:

If the Children's Division is eliminated, $170,000 of the above fixed expenses could be avoided.The annual financial advantage (disadvantage)for the company of eliminating this division should be:
A)($300,000)
B)$30,000
C)($30,000)
D)$300,000

Question

The following information relates to next year's projected operating results of the Children's Division of Grunge Clothing Corporation:

If the Children's Division is eliminated, $170,000 of the above fixed expenses could be avoided.The annual financial advantage (disadvantage)for the company of eliminating this division should be:
A)($300,000) 
B)$30,000 
C)($30,000) 
D)$300,000

Quizplus · Accepted Answer

The fixed expenses that could be avoided if the Children's Division is eliminated are $170,000. However, the division is also contributing $200,000 to the company's profits. Therefore, if the division is eliminated, there will be a net loss of $30,000 ($200,000 - $170,000) to the company. Hence, option C is the correct answer. 11ea7998_5c59_303f_911b_d1b564bac2f2_TB2627_00_TB2627_00 The company would lose the $30,000 positive segment margin if the Children's Division is eliminated.

The Following Information Relates to Next Year's Projected Operating Results