Gata Co.plans to discontinue a department that has a $48,000 contribution margin and $96,000 of fixed costs.Of these fixed costs,$42,000 cannot be avoided.What would be the effect of discontinuing the department on Gata's overall operating income?
A) An increase of $6,000.
B) A decrease of $6,000.
C) An increase of $48,000.
D) A decrease of $48,000.

Question

Quizplus · Accepted Answer

If the department is discontinued, Gata Co. will save $42,000 in fixed costs, which will increase its overall operating income by $6,000.

Gata CoPlans to Discontinue a Department That Has a $48,000 Contribution