If a segment is eliminated simply because it is unprofitable, and the fixed costs associated with the eliminated segment are totally allocated fixed costs, the operating income for the company is expected to
A) decrease.
B) increase.
C) not be affected.
D) either increase or decrease depending on the contribution margin for the eliminated segment.

Question

Quizplus · Accepted Answer

If a segment is eliminated simply because it is unprofitable, and the fixed costs associated with the eliminated segment are totally allocated fixed costs, the operation income for the company is expected to decrease because the fixed costs are not avoidable but the company loses the contribution margin related to the eliminated segment.

If a Segment Is Eliminated Simply Because It Is Unprofitable