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

Chase Berg

Business

29 September, 08:07

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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Damari Davila · 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