A segment has the following data: Sales $ 350 , 000 Variable expenses 150 , 000 Fixed expenses 285 , 000 \begin{array} { l r } ext { Sales } & \$ 350,000 \ ext { Variable expenses } & 150,000 \ ext { Fixed expenses } & 285,000\end{array} Sales Variable expenses Fixed expenses $350 , 000 150 , 000 285 , 000 What will be the incremental effect on net income if this segment is eliminated assuming the fixed expenses will be allocated to profitable segments?A) $200000 increaseB) $200000 decreaseC) $275000 decreaseD) Cannot be determined from the data provided.

Question

A segment has the following data:    Sales  $ 350 , 000  Variable expenses  150 , 000  Fixed expenses  285 , 000 \begin{array} { l r } 	ext { Sales }  &  \$ 350,000 \	ext { Variable expenses }  &  150,000 \	ext { Fixed expenses }  &  285,000\end{array}  Sales   Variable expenses   Fixed expenses  ​ $350 , 000 150 , 000 285 , 000 ​   What will be the incremental effect on net income if this segment is eliminated assuming the fixed expenses will be allocated to profitable segments?A)  $200000 increaseB)  $200000 decreaseC)  $275000 decreaseD)  Cannot be determined from the data provided.

George Korath · Accepted Answer

Final Answer : B, Explanation :  If the segment is eliminated, the company will lose the contribution margin of $200,000 (Sales $350,000 - Variable expenses $150,000), leading to a decrease in net income by $200,000. Fixed expenses will still be incurred as they are allocated to other segments.

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