Gata Co. plans to discontinue a department that has a $48,000 contribution margin and $96,000 of fixed costs. Of these fixed costs, $42,000 cannot be avoided. What would be the effect of this discontinuance on Gata's overall net operating income?
A)Decrease of $48,000.
B)Decrease of $6,000.
C)Increase of $6,000.
D)Increase of $48,000.

Question

Quizplus · Accepted Answer

The discontinuance of the department would result in a decrease in fixed costs of $42,000, which would increase net operating income by $6,000.

Gata Co Plans to Discontinue a Department That Has a $48,000