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22 May, 10:44

One division of a firm has the following dа ta: Sales $300,000 Variable costs 160,000 Fixed costs 155,000 What will be the incremental effect on net income for the firm if this division is eliminated, assuming the fixed costs will be allocated to other divisions (i. e., they cannot be avoided) ?

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  1. 22 May, 14:30
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    140,000 decrease

    Explanation:

    Given data;

    Sales = $ 300000

    Variable cost = $ 160000

    Fixed cost = $ 155000

    Now,

    the variation in the net income will on the variable cost and the sales as the fixed costs cannot be avoided or altered.

    thus,

    the change in the net income = contribution margin lost = Sales - variable cost

    or

    the change in the net income = $ 300,000 - $ 160,000

    or

    the change in the net income = 140,000 decrease
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