Manor Company plans to discontinue a department that has a contribution margin of $24,000 and $48,000 in fixed costs.Of the fixed costs,$21,000 cannot be avoided.What would be the effect of discontinuing the department on Manor's overall operating income?
A) An increase of $3,000.
B) A decrease of $3,000.
C) An increase of $24,000.
D) A decrease of $24,000.

Question

Quizplus · Accepted Answer

The contribution margin of $24,000 would be lost, but only $27,000 ($48,000 - $21,000) of fixed costs would be saved, resulting in a net decrease in operating income of $3,000.

Manor Company Plans to Discontinue a Department That Has a Contribution