San Ruiz Interiors provides design services to residential and commercial clients. The residential services produce a contribution margin of $450,000 and have traceable fixed operating costs of $480,000. Management is studying whether to drop the residential operation. If closed, the fixed operating costs will fall by $370,000 and San Ruiz' income will:

Question

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The residential services currently result in a loss of $30,000 ($450,000 - $480,000). If the operation is closed, San Ruiz will save $370,000 in fixed costs but will also lose the $450,000 contribution margin. The net effect is a decrease in income of $80,000 ($450,000 - $370,000).

San Ruiz Interiors Provides Design Services to Residential and Commercial