Yuwanga company has three business segments, two of which are profitable and the other which has been experiencing recurring losses. For the current year, the following information is available for the unprofitable segment: If this segment is eliminated, 70% of the fixed expenses can be eliminated and the other 30% will be allocated to the remaining segments. If management decides to eliminate this segment, the company's net income will
A) increase by $20,000.
B) decrease by $98,000.
C) decrease by $22,000.
D) increase by $22,000.

Question

Yuwanga company has three business segments, two of which are profitable and the other which has been experiencing recurring losses. For the current year, the following information is available for the unprofitable segment:  If this segment is eliminated, 70% of the fixed expenses can be eliminated and the other 30% will be allocated to the remaining segments. If management decides to eliminate this segment, the company's net income will
A) increase by $20,000. 
B) decrease by $98,000. 
C) decrease by $22,000. 
D) increase by $22,000.

Quizplus · Accepted Answer

(Contribution margin - Fixed expenses eliminated = Net Income decrease); $120,000 - ($140,000 x .70) = $22,000 (decrease)

Yuwanga Company Has Three Business Segments, Two of Which Are