The most recent income statement for the Strongsville Branch of the July Company is presented below. $$\begin{array} { l l }
\text { Sales } & \$ 57,000 \
\text { Variable costs } & \underline { 31,500 } \
\text { Contribution margin } & \$ 25,500 \
\text { Fixed costs: } & \
\text { Avoidable } & 13,500 \
\text { Unavoidable } & \underline { 18,000 } \
\text { Operating income } & \$ 16,000
\end{array}$$ The July Company is thinking of eliminating the Strongsville Branch because it is showing a loss. If the Strongsville Branch is eliminated, July's operating income will:

Question

The most recent income statement for the Strongsville Branch of the July Company is presented below. $$\begin{array} { l l } 
\text { Sales } & \$ 57,000 \
\text { Variable costs } & \underline { 31,500 } \
\text { Contribution margin } & \$ 25,500 \
\text { Fixed costs: } & \
\text { Avoidable } & 13,500 \
\text { Unavoidable } & \underline { 18,000 } \
\text { Operating income } & \$ 16,000
\end{array}$$ The July Company is thinking of eliminating the Strongsville Branch because it is showing a loss. If the Strongsville Branch is eliminated, July's operating income will:

Quizplus · Accepted Answer

If the branch is eliminated, the contribution margin of $25,500 will be lost, but only the avoidable fixed costs of $13,500 will be saved. Thus, the operating income will decrease by $25,500 - $13,500 = $12,000.

The Most Recent Income Statement for the Strongsville Branch of the July