A segment has the following data: $\begin{array}{lr}
\text { Sales } & \$ 700,000 \
\text { Variable expenses } & 300,000 \
\text { Fixed expenses } & 550,000
\end{array}$ What will be the incremental effect on net income if this segment is eliminated assuming the fixed expenses will be allocated to profitable segments?

Question

Quizplus · Accepted Answer

If the segment is eliminated, the company will lose the contribution margin (Sales - Variable expenses = $700,000 - $300,000 = $400,000). Since fixed expenses will be reallocated, they will not be saved, resulting in a $400,000 decrease in net income.

A Segment Has the Following Data Sales $700,000 Variable expenses 300,000 Fixed expenses 550,000\begin{array}{lr}\text { Sales } & \$ 700,000 \\\text { Variable expenses } & 300,000 \\\text { Fixed expenses } & 550,000\end{array} Sales Variable expenses Fixed expenses ​$700,000300,000550,000​

A Segment Has the Following Data $\begin{array}{lr}\text { Sales } & \$ 700,000 \\\text { Variable expenses } & 300,000 \\\text { Fixed expenses } & 550,000\end{array}$