A study has been conducted to determine if one of the departments in Carry Corporation should be discontinued.The contribution margin in the department is $80,000 per year.Fixed expenses charged to the department are $95,000 per year.It is estimated that $50,000 of these fixed expenses could be eliminated if the department is discontinued.These data indicate that if the department is discontinued, the yearly financial advantage (disadvantage) for the company would be:

A) ($15,000)
B) $15,000
C) ($30,000)
D) $30,000

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Shakiya Slaughter · Accepted Answer

Final Answer : C, Explanation :    If the department were eliminated, the company would lose the department's segment margin of $30,000. The contribution margin of $80,000 does not cover the fixed expenses of $95,000, resulting in a loss of $15,000 if the department continues to operate. However, if the department is discontinued, the $50,000 of fixed expenses that can be eliminated would result in a net financial advantage of $30,000 ($80,000 contribution margin - $45,000 fixed expenses). Therefore, the best choice would be to discontinue the department.

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