Wombat Wholesalers Company has prepared the following income statement showing sales for the current year:
$$\begin{array} { l r r r r }
\text { Company } & \text { A } & \text { B } & \text { C } & \text { Total } \
\text { Sales } & \$ & \$ & \$ & \$ \
\text { Cost of sales } & 50000 & 20000 & 30000 & 100000 \
\text { Contribution margin } & 30000 & 10000 & 20000 & 60000 \
\text { Marketing support } & 20000 & 10000 & 10000 & 40000 \
\text { Sales and delivery processing costs } & 2000 & 500 & 1500 & 4000 \
\text { Fixed costs allocated: } & 1500 & 500 & 3000 & 5000 \
\text { Rent } & & & & \
\text { Depreciation } & 2500 & 1000 & 1500 & 5000 \
\text { Administrative expenses } & 3000 & 1200 & 1800 & 6000 \
\text { Operating profit } & 4500 & 2600 & 5900 & 13000 \
& 6500 & 4200 & ( 3700 ) & 7000
\end{array}$$
The following additional information is available:
* The rent of $1500 assigned to Company C is not avoidable if the company is dropped.
* The company's total depreciation would not be affected by dropping Company C.
* Elimination of Company C will make it possible to cut two people from the administrative staff;their combined salaries total $3000.
If Company C was dropped,Wombat would have reported:

Question

Wombat Wholesalers Company has prepared the following income statement showing sales for the current year:
$$\begin{array} { l r r r r } 
\text { Company } & \text { A } & \text { B } & \text { C } & \text { Total } \
\text { Sales } & \$ & \$ & \$ & \$ \
\text { Cost of sales } & 50000 & 20000 & 30000 & 100000 \
\text { Contribution margin } & 30000 & 10000 & 20000 & 60000 \
\text { Marketing support } & 20000 & 10000 & 10000 & 40000 \
\text { Sales and delivery processing costs } & 2000 & 500 & 1500 & 4000 \
\text { Fixed costs allocated: } & 1500 & 500 & 3000 & 5000 \
\text { Rent } & & & & \
\text { Depreciation } & 2500 & 1000 & 1500 & 5000 \
\text { Administrative expenses } & 3000 & 1200 & 1800 & 6000 \
\text { Operating profit } & 4500 & 2600 & 5900 & 13000 \
 & 6500 & 4200 & ( 3700 ) & 7000
\end{array}$$
The following additional information is available:
* The rent of $1500 assigned to Company C is not avoidable if the company is dropped.
* The company's total depreciation would not be affected by dropping Company C.
* Elimination of Company C will make it possible to cut two people from the administrative staff;their combined salaries total $3000.
If Company C was dropped,Wombat would have reported:

Quizplus · Accepted Answer

If Company C is dropped, the rent of $1500 cannot be avoided and the total depreciation would remain the same, but the administrative staff can be reduced by two people, resulting in a saving of $3000. However, the sales for Company C were $8000, which would be lost if the company is dropped. As a result, the total revenue would decrease by $8000, and the total expenses would decrease by ($1500 + $3000) = $4500. Therefore, the net profit would decrease, and the corporate profits would be lower.

Wombat Wholesalers Company Has Prepared the Following Income Statement Showing