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) Increase of $6,000.
B) Decrease of $6,000.
C) Increase of $48,000.
D) Decrease of $48,000.

Question

Quizplus · Accepted Answer

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

Gata CoPlans to Discontinue a Department That Has a $48,000 Contribution