RS Company's western territory's forecasted income statement for the upcoming year is as follows: RS Company's management is considering dropping the western territory and has determined that $300,000 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:  RS Company's management is considering dropping the western territory and has determined that $300,000 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

If the western territory is dropped, the company will avoid $300,000 of fixed expenses but will also lose $150,000 of contribution margin. This results in a net decrease in operating income of $150,000 - $300,000 = $-150,000 or a decrease of $30,000 compared to the original forecast. Therefore, the best answer is C, down $30,000.

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