RS Company's western territory's forecasted income statement for the upcoming year is as follows:
$$\begin{array} { | l | r | }
\hline \text { Sales } & \$ 750,000 \
\hline \text { Variable expenses } & 420,000 \
\hline \text { Contribution margin } & \$ 330,000 \
\hline \text { Fixed experses } & 396,000 \
\hline \text { Operating income } & ( \$ 66,000 ) \
\hline
\end{array}$$
RS Company's management is considering dropping the western territory. This move would be financially advantageous only if the company could eliminate $330,000 of fixed costs or more.

Question

RS Company's western territory's forecasted income statement for the upcoming year is as follows:
 $$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 750,000 \
\hline \text { Variable expenses } & 420,000 \
\hline \text { Contribution margin } & \$ 330,000 \
\hline \text { Fixed experses } & 396,000 \
\hline \text { Operating income } & ( \$ 66,000 ) \
\hline
\end{array}$$ 
RS Company's management is considering dropping the western territory. This move would be financially advantageous only if the company could eliminate $330,000 of fixed costs or more.

Quizplus · Accepted Answer

Dropping the western territory would eliminate $396,000 of fixed costs, which is more than the $330,000 required to make the move financially advantageous.

RS Company's Western Territory's Forecasted Income Statement for the Upcoming