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One division of a firm has the following data: 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)?

Respuesta :

Answer:

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