Zandy Beverage Company plans to eliminate a branch that has a contribution margin of £50,000 and fixed costs of £75,000. Of the fixed costs, £55,000 cannot be eliminated. The effect of eliminating this branch on net income would be a(n)
A)decrease of £25,000.
B)increase of £25,000.
C)decrease of £30,000.
D)increase of £30,000.

Question

Quizplus · Accepted Answer

Eliminating the branch would remove its contribution margin of £50,000, but only £20,000 (£75,000 - £55,000) of the fixed costs would be saved. Therefore, net income would decrease by £30,000 (£50,000 - £20,000).

Zandy Beverage Company Plans to Eliminate a Branch That Has