Brandy Company is deciding whether or not to discontinue one of its divisions.The division's contribution margin is $27,000 per year.The fixed costs charged to the division total $32,000,but $15,000 would be eliminated if the division is discontinued.If the division is eliminated,the overall operating income would
A)Decrease by $9,000
B)Decrease by $12,000
C)Decrease by $15,000
D)Increase by $27,000

Question

Quizplus · Accepted Answer

If the division is discontinued, the overall fixed costs would decrease by $15,000, but the contribution margin of $27,000 would also be lost. Therefore, the overall operating income would decrease by $12,000 (i.e., $27,000 - $15,000).

Brandy Company Is Deciding Whether or Not to Discontinue One