Question

A company is considering eliminating a department that has an annual contribution margin of $33,000 and $66,000 in annual fixed costs. Of the fixed costs, $16,500 cannot be avoided. The annual financial advantage (disadvantage) for the company of eliminating this department would be: Multiple Choice ($33,000) $33,000 ($16,500) $16,500

Answer 1

Answer:

($16,500)

Explanation:

Calculation to determine The annual financial advantage (disadvantage) for the company of eliminating this department would be

First step is calculate the Avoidable fixed costs

Avoidable fixed costs = $66,000 − $16,500

Avoidable fixed costs = $49,500

Now let determine Segment Margin

Contribution Margin $33,000

Less Avoidable fixed costs $49,500

Segment Margin ($16,500)

Therefore The annual (disadvantage) for the company of eliminating this department would be ($16,500)