Bryson Company's western territory's forecasted income statement for the upcoming year is as follows:
$$\begin{array} { | l | r | }
\hline \text { Sales revenue } & \$ 700,000 \
\hline \text { Variable costs } & \underline{600,000} \
\hline \text { Contribution margin } & \$ 100,000 \
\hline \text { Fixed costs } & \underline { 596,000 } \
\hline \text { Operating income (loss) } & \underline{\$ ( 496,000)} \
\hline
\end{array}$$ Bryson Company's management is considering dropping the western territory.If the company eliminates $496,000 of fixed costs by dropping the segment,the segment should be dropped.

Question

Bryson Company's western territory's forecasted income statement for the upcoming year is as follows:
 $$\begin{array} { | l | r | } 
\hline \text { Sales revenue } & \$ 700,000 \
\hline \text { Variable costs } & \underline{600,000} \
\hline \text { Contribution margin } & \$ 100,000 \
\hline \text { Fixed costs } & \underline { 596,000 } \
\hline \text { Operating income (loss) } & \underline{\$ ( 496,000)} \
\hline
\end{array}$$ Bryson Company's management is considering dropping the western territory.If the company eliminates $496,000 of fixed costs by dropping the segment,the segment should be dropped.

Quizplus · Accepted Answer

Even after eliminating the fixed costs of $496,000, the western territory would still contribute a positive net income of $78,000. Therefore, dropping the territory would result in a loss for the company.

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