San Ruiz Interiors provides design services to residential and commercial clients. The residential services produce a contribution margin of $520,000 and have traceable fixed operating costs of $550,000. Management is studying whether to drop the residential operation. If closed, the fixed operating costs will fall by $450,000 and San Ruiz' income will: Multiple Choice A. increase by $30,000. B. increase by $70,000. C. increase by $420,000. D. decrease by $70,000. E. decrease by $420,000.

Question

Krystal

Business

5 November, 19:38

San Ruiz Interiors provides design services to residential and commercial clients. The residential services produce a contribution margin of $520,000 and have traceable fixed operating costs of $550,000. Management is studying whether to drop the residential operation. If closed, the fixed operating costs will fall by $450,000 and San Ruiz' income will: Multiple Choice A. increase by $30,000. B. increase by $70,000. C. increase by $420,000. D. decrease by $70,000. E. decrease by $420,000.

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Answers (1)

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Terry Solomon · Answer 1

San income will decrease by $70,000

so correct option is D. decrease by $70,000

Explanation:

given data

contribution margin = $520,000

fixed operating costs = $550,000

Decrease fixed operating costs fall = $450,000

solution

as if residential operations are closed

we find here Decrease in income

Decrease in income = contribution margin - Decrease of fixed operating costs ... 1

Decrease in income = $520,000 - $450,000

Decrease in income = $70,000

so that San income will decrease by $70,000

so correct option is D. decrease by $70,000