Power Inc.has two divisions,Windsor and Ridge.Following is the income statement for the past month: What would Power's profit margin be if the Windsor division was dropped and all fixed costs are unavoidable?
A)$0
B)$80,000 loss
C)$42,000 profit
D)$80,000 profit

Question

Power Inc.has two divisions,Windsor and Ridge.Following is the income statement for the past month:  What would Power's profit margin be if the Windsor division was dropped and all fixed costs are unavoidable?
A)$0 
B)$80,000 loss 
C)$42,000 profit 
D)$80,000 profit

Quizplus · Accepted Answer

If the Windsor division is dropped, the company will lose its total revenue of $400,000 but will still have to pay all of its fixed costs, which are $480,000. This will result in a loss of $80,000 ($400,000 - $480,000), as stated in option B.

Power IncHas Two Divisions,Windsor and Ridge