The most recent income statement for the South Branch of First Financial Bank is presented below:
$\begin{array}{ll}
\text { Sales } & \$ 57,000 \
\text { Variable costs } & 31,500\\text { Contribution margin } & 25,500 \
\text { Avoidable fixed costs } & 13,500 \
\text { Unavoidable fixed costs } & 18,000\
\text { Operating loss }&\$(6,000)
\end{array}$
First Financial Bank is thinking about eliminating the South Branch.If the branch is eliminated,First Financial Bank's operating income will ________.
A) increase by $6,000
B) increase by $25,500
C) decrease by $12,000
D) decrease by $31,500

Question

Quizplus · Accepted Answer

If the South Branch is eliminated, the bank will save on both variable costs ($31,500) and avoidable fixed costs ($13,500), totaling $45,000 in savings. However, it will also lose sales of $57,000. The net effect is a decrease in operating income of $12,000 ($57,000 in lost sales - $45,000 in saved costs). Unavoidable fixed costs will remain, so they don't impact the decision.

The Most Recent Income Statement for the South Branch of First