Geo Company's western territory's forecasted income statement for the upcoming year is as follows: Sales revenue $ 850 comma 000 Variable costs (530 comma 000 ) Contribution margin $ 320 comma 000 Fixed costs (500 comma 000 ) Operating loss $ (180 comma 000 ) The company's management is considering dropping the western territory and has determined that 80 % of the fixed costs are avoidable. What is the change in the forecasted operating loss for the upcoming year if the western territory is dropped? Assume the company predicts an operating loss across the entire company. A. The loss will be reduced by $ 80 comma 000. B. The loss will be reduced by $ 400 comma 000. C. The loss will be increased by $ 80 comma 000. D. The loss will be increased by $ 400 comma 000.

Question

Rudy Huber

Business

21 May, 04:26

Geo Company's western territory's forecasted income statement for the upcoming year is as follows: Sales revenue $ 850 comma 000 Variable costs (530 comma 000 ) Contribution margin $ 320 comma 000 Fixed costs (500 comma 000 ) Operating loss $ (180 comma 000 ) The company's management is considering dropping the western territory and has determined that 80 % of the fixed costs are avoidable. What is the change in the forecasted operating loss for the upcoming year if the western territory is dropped? Assume the company predicts an operating loss across the entire company. A. The loss will be reduced by $ 80 comma 000. B. The loss will be reduced by $ 400 comma 000. C. The loss will be increased by $ 80 comma 000. D. The loss will be increased by $ 400 comma 000.

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Answers (1)

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Shawn Macias · Answer 1

A. The loss will be reduced by $ 80 comma 000.

Explanation:

The computation change in the forecasted operating loss is shown below:

= Operating loss - fixed cost * remaining percentage

= $180,000 - $500,000 * 20%

= $180,000 - $100,000

= $80,000

Since the 80% of the fixed cost is avoidable so we take the remaining percentage i. e 20%

All other information which is given is not relevant, Hence, ignored it