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23 May, 19:10

San Ruiz Interiors provides design services to residential and commercial clients. The residential services produce a contribution margin of $520,000 and have traceable fixed operating costs of $550,000. Management is studying whether to drop the residential operation. If closed, the fixed operating costs will fall by $450,000 and San Ruiz' income will: Multiple Choice A. increase by $30,000. B. increase by $70,000. C. increase by $420,000. D. decrease by $70,000. E. decrease by $420,000.

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  1. 23 May, 19:16
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    San income will decrease by $70,000

    so correct option is D. decrease by $70,000

    Explanation:

    given data

    contribution margin = $520,000

    fixed operating costs = $550,000

    Decrease fixed operating costs fall = $450,000

    solution

    as if residential operations are closed

    we find here Decrease in income

    Decrease in income = contribution margin - Decrease of fixed operating costs ... 1

    Decrease in income = $520,000 - $450,000

    Decrease in income = $70,000

    so that San income will decrease by $70,000

    so correct option is D. decrease by $70,000
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