The following information relates to next year's projected operating results of the Consumer Division of Xampa Corporation: Contribution margin $1,800,000 Fixed expenses 2,100,000 Net operating loss ($300,000) 1. If the Consumer Division is eliminated, $1,600,000 of the above fixed expenses could be avoided. What will be the effect on Xampa's profit next year if Consumer Division is eliminated?

Question

Business

Blossom

4 March, 12:43

The following information relates to next year's projected operating results of the Consumer Division of Xampa Corporation: Contribution margin $1,800,000 Fixed expenses 2,100,000 Net operating loss ($300,000) 1. If the Consumer Division is eliminated, $1,600,000 of the above fixed expenses could be avoided. What will be the effect on Xampa's profit next year if Consumer Division is eliminated?

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Answers (1)

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Jenny Levine · Answer 1

decreased by $200,000

Explanation:

The effect on Xampa's profit next year would be

= Reduction in Contribution margin - avoided fixed expenses

= $1,800,000 - $1,600,000

= $2,00,000

As we see that the operating profit would be decreased by $200,000 if the fixed cost is avoided for $1,600,000 and the contribution margin is decreased by $1,800,000 so the difference shows the effect