Manor Company plans to discontinue a department that has a contribution margin of $25,000 and $50,000 in fixed costs.Of the fixed costs,$21,000 cannot be eliminated.What would be the effect on the operating income of Manor Company of discontinuing this department?
A) An increase of $4,000.
B) A decrease of $4,000.
C) An increase of $25,000.
D) A decrease of $25,000.

Question

Quizplus · Accepted Answer

The contribution margin of $25,000 would be lost, but $29,000 of fixed costs would be eliminated, resulting in a net increase in operating income of $4,000.

Manor Company Plans to Discontinue a Department That Has a Contribution