The Corporation has three departments, Widgets, Ridgets and Digits. At the end of the accounting period the following information is available.

The Corporation is considering eliminating the Widgets department. What will be the change in The Corporation's profit if the Widgets department is eliminated? Assume that all indirect expenses are unavoidable and that all other circumstances are held constant.
A) $500 fall
B) $1500 fall
C) $1000 fall
D) $1500 increase

Question

The Corporation has three departments, Widgets, Ridgets and Digits. At the end of the accounting period the following information is available.

The Corporation is considering eliminating the Widgets department. What will be the change in The Corporation's profit if the Widgets department is eliminated? Assume that all indirect expenses are unavoidable and that all other circumstances are held constant.
A) $500 fall 
B) $1500 fall 
C) $1000 fall 
D) $1500 increase

Quizplus · Accepted Answer

If the Widgets department is eliminated, the Corporation's profit will fall by $1500. This is because the Widgets department has a contribution margin of $1500, which is the difference between its revenues of $5000 and its variable expenses of $3500. If the department is eliminated, the Corporation will lose this contribution margin and its profit will fall by the same amount.

The Corporation Has Three Departments, Widgets, Ridgets and Digits