One department in a company had a contribution margin of $18,000 and a net loss from operations of $3,000. The indirect expenses allocated to this department would have been incurred whether or not the department existed. If this department had been eliminated, the company's reported net income would have been:

Question

Quizplus · Accepted Answer

If the department had been eliminated, the company would have saved the $18,000 contribution margin but still incurred the indirect expenses. Therefore, the net loss from operations would have decreased by $18,000, resulting in a net loss of $15,000. Thus, if the department had been eliminated, the company's reported net income would have been $15,000 lower.

One Department in a Company Had a Contribution Margin of $18,000