A segment has the following data:
$$\begin{array} { l r }
\text { Sales } & \$ 600000 \
\text { Variable costs } & 320000 \
\text { Fixed costs } & 310000
\end{array}$$
What will be the incremental effect on net income if this segment is eliminated,assuming the fixed costs will be allocated to profitable segments?
A)$290 000 decrease
B)$30 000 increase
C)$280 000 decrease
D)$310 000 decrease

Question

A segment has the following data:
$$\begin{array} { l r } 
\text { Sales } & \$ 600000 \
\text { Variable costs } & 320000 \
\text { Fixed costs } & 310000
\end{array}$$
What will be the incremental effect on net income if this segment is eliminated,assuming the fixed costs will be allocated to profitable segments?
A)$290 000 decrease
B)$30 000 increase
C)$280 000 decrease
D)$310 000 decrease

Quizplus · Accepted Answer

Without any further information about the segment, it is impossible to accurately determine the net income impact of its elimination. However, since the fixed costs associated with the segment will be allocated to profitable segments, it can be assumed that the eliminated segment was not profitable. Therefore, the overall effect of its elimination would be a decrease in net income.

To calculate the estimated net income impact, we need to know the segment's contribution margin (sales - variable costs) and the amount of fixed costs allocated to it. Assuming the segment's contribution margin was breakeven (i.e. it generated no profit), then the entire $280,000 in fixed costs allocated to it would be a net loss. Therefore, eliminating the segment would result in a $280,000 decrease in net income.

None of the given answer choices match this exact figure, but the closest one is C, which is a $280,000 decrease in net income.

A Segment Has the Following Data Sales $600000 Variable costs 320000 Fixed costs 310000\begin{array} { l r } \text { Sales } & \$ 600000 \\\text { Variable costs } & 320000 \\\text { Fixed costs } & 310000\end{array} Sales Variable costs Fixed costs ​$600000320000310000​

A Segment Has the Following Data $\begin{array} { l r } \text { Sales } & \$ 600000 \\\text { Variable costs } & 320000 \\\text { Fixed costs } & 310000\end{array}$