Freemen Company's western territory's forecasted income statement for the upcoming year is as follows:

Freemen Company's management is considering dropping the western territory.This move would be financially advantageous only if the company could eliminate $496,000 of fixed cost.

Question

Freemen Company's western territory's forecasted income statement for the upcoming year is as follows:
  
Freemen Company's management is considering dropping the western territory.This move would be financially advantageous only if the company could eliminate $496,000 of fixed cost.

Quizplus · Accepted Answer

Since the western territory's contribution margin is $520,000 and the fixed cost attributed to it is $1,016,000, the net income for the territory is ($1,016,000 - $520,000) = $496,000. Therefore, if the company eliminates $496,000 of fixed cost by dropping the territory, it would break even and not incur any losses or negative impact on its overall income statement.

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