The most recent income statement for the Venetian Branch of Palm Harbor Bank is presented below:
$\begin{array}{ll}
\text { Sales } & \$ 57,000 \
\text { Variable costs } & 31,500\\text { Contribution margin } & 25,500 \
\text { Avoidable fixed costs } & 13,500 \
\text { Unavoidable fixed costs } & 20,000\
\text { Operating loss }&\$(8,000)
\end{array}$
Palm Harbor Bank is thinking about eliminating the Venetian Branch.If the branch is eliminated,Palm Harbor Bank's operating income will ________.
A) increase by $8,000
B) increase by $25,500
C) decrease by $12,000
D) decrease by $31,500

Question

Quizplus · Accepted Answer

Eliminating the Venetian Branch would remove its contribution margin of $25,500 but also remove the avoidable fixed costs of $13,500. The net effect would be a decrease in operating income by $12,000 ($25,500 - $13,500). Unavoidable fixed costs of $20,000 would remain regardless of the decision.

The Most Recent Income Statement for the Venetian Branch of Palm