Ron Jensen, the controller of Inca Industries, has prepared an analysis to help management determine whether one of Inca's departments should be eliminated.The department's contribution margin is $44,000.The fixed expenses charged to the department total $75,000.Of the fixed expenses, Jensen estimates that $36,000 of those expenses would be eliminated if the department were discontinued.Based on Jensen's analysis, if the department is eliminated, Inca's overall operating income would
A)increase by $8,000 per year.
B)decrease by $8,000 per year.
C)decrease by $31,000 per year.
D)decrease by $5,000 per year.

Question

Quizplus · Accepted Answer

If the department is eliminated, the $44,000 contribution margin would be lost, while only $36,000 of fixed expenses would be saved. This results in a net decrease of $8,000 ($44,000 - $36,000) in operating income.

Ron Jensen, the Controller of Inca Industries, Has Prepared an Analysis