RS Company's western territory's forecasted income statement for the upcoming year is as follows:
$$\begin{array} { | l | r | }
\hline \text { Sales } & \$ 750,000 \
\hline \text { Variable expenses } & 420,000 \
\hline \text { Contribution margin } & \$ 330,000 \
\hline \text { Fixed experses } & 396,000 \
\hline \text { Operating income } & ( \$ 66,000 ) \
\hline
\end{array}$$
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RS Company's management is considering dropping the western territory and has determined that 90% of the fixed expenses are avoidable. What is the change in RS Company's forecasted operating income for the upcoming year if the western territory is dropped?

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 and has determined that 90% of the fixed expenses are avoidable. What is the change in RS Company's forecasted operating income for the upcoming year if the western territory is dropped?

Quizplus · Accepted Answer

The avoidable fixed expenses are 90% of $396,000, or $356,400. If the western territory is dropped, the operating income will increase by $356,400.

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