Freemen Company's western territory's forecasted income statement for the upcoming year is as follows:
$$\begin{array} { | l | r | }
\hline \text { Sales } & \$ 800,000 \
\hline \text { Variable expenses } & \underline { 500,000 } \
\hline \text { Contribution margin } & \$ 300,000 \
\hline \text { Fixed expenses } & \underline { 396,000 } \
\hline \text { Operating income } & ( \$ 96,000 ) \
\hline
\end{array}$$ Freemen Company's management is considering dropping the western territory. This move would be financially advantageous only if the company could eliminate $96,000 of fixed costs or more.

Question

Freemen Company's western territory's forecasted income statement for the upcoming year is as follows:
 $$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 800,000 \
\hline \text { Variable expenses } & \underline { 500,000 } \
\hline \text { Contribution margin } & \$ 300,000 \
\hline \text { Fixed expenses } & \underline { 396,000 } \
\hline \text { Operating income } & ( \$ 96,000 ) \
\hline
\end{array}$$ Freemen Company's management is considering dropping the western territory. This move would be financially advantageous only if the company could eliminate $96,000 of fixed costs or more.

Quizplus · Accepted Answer

If the company could eliminate $96,000 or more of fixed costs by dropping the western territory, their operating income would increase by the same amount or more. This would make the move financially advantageous.

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