Bryson Company's western territory's forecasted income statement for the upcoming year is as follows:
$$\begin{array} { | l | r | }
\hline \text { Sales revenue } & \$ 800,000 \
\hline \text { Variable costs } & \underline { 500,000 } \
\hline \text { Contribution margin } & \$ 300,000 \
\hline \text { Fixed costs } & \underline { 496,000 } \
\hline \text { Operating income (loss) } & \$ ( 196,000 \
\hline
\end{array}$$ Bryson Company's management is considering dropping the western territory.If the company eliminates $196,000 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:
 $$\begin{array} { | l | r | } 
\hline \text { Sales revenue } & \$ 800,000 \
\hline \text { Variable costs } & \underline { 500,000 } \
\hline \text { Contribution margin } & \$ 300,000 \
\hline \text { Fixed costs } & \underline { 496,000 } \
\hline \text { Operating income (loss) } & \$ ( 196,000 \
\hline
\end{array}$$ Bryson Company's management is considering dropping the western territory.If the company eliminates $196,000 of fixed costs by dropping the segment,the segment should be dropped.

Quizplus · Accepted Answer

Dropping the segment only makes sense if the eliminated fixed costs exceed the contribution margin lost by dropping the segment. In this case, eliminating $196,000 of fixed costs does not exceed the $300,000 contribution margin, so dropping the segment would not be advisable based on this information alone.

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