A segment has the following data: $$\begin{array} { l r }
\text { Sales } & \$ 350,000 \
\text { Variable expenses } & 150,000 \
\text { Fixed expenses } & 285,000
\end{array}$$ What will be the incremental effect on net income if this segment is eliminated assuming the fixed expenses will be allocated to profitable segments?
A) $200000 increase
B) $200000 decrease
C) $275000 decrease
D) Cannot be determined from the data provided.

Question

A segment has the following data: $$\begin{array} { l r } 
\text { Sales } & \$ 350,000 \
\text { Variable expenses } & 150,000 \
\text { Fixed expenses } & 285,000
\end{array}$$ What will be the incremental effect on net income if this segment is eliminated assuming the fixed expenses will be allocated to profitable segments?
A) $200000 increase
B) $200000 decrease
C) $275000 decrease
D) Cannot be determined from the data provided.

Quizplus · Accepted Answer

If the segment is eliminated, the company will lose the contribution margin of $200,000 (Sales $350,000 - Variable expenses $150,000), leading to a decrease in net income by $200,000. Fixed expenses will still be incurred as they are allocated to other segments.