Ben's Foods has two sales offices: North and South.The company's records report the following information

Management is considering dropping the North office.What will happen to operating income if North is eliminated?
A)Profit of $10,000
B)Profit of $5,000
C)Loss of $15,000
D)Company would be at break-even.

Question

Ben's Foods has two sales offices: North and South.The company's records report the following information

Management is considering dropping the North office.What will happen to operating income if North is eliminated?
A)Profit of $10,000 
B)Profit of $5,000 
C)Loss of $15,000 
D)Company would be at break-even.

Quizplus · Accepted Answer

The North office has a contribution margin of $30,000 and fixed costs of $45,000, resulting in a loss of $15,000. If the North office is eliminated, the company will lose its contribution margin of $30,000 and its fixed costs will decrease by $30,000. Therefore, the company's operating income will decrease by $15,000, resulting in a loss.

Ben's Foods Has Two Sales Offices: North and South