Weston Corporation is considering eliminating a department that has a contribution margin of $70,000 and $140,000 in fixed costs. Of the fixed costs, $100,000 cannot be avoided. The effect of eliminating this department on Weston's overall net operating income would be:
A)an increase of $70,000.
B)a decrease of $70,000.
C)an increase of $30,000.
D)a decrease of $30,000.

Question

Quizplus · Accepted Answer

Eliminating the department would remove the $70,000 contribution margin, but $100,000 of the fixed costs would remain. This results in a net decrease of $30,000 in net operating income ($70,000 - $100,000 = -$30,000).

Weston Corporation Is Considering Eliminating a Department That Has a Contribution