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Cindy Medrano
on Dec 16, 2024

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Gata Co. plans to discontinue a department that has a $48,000 contribution margin and $96,000 of fixed costs. Of these fixed costs, $42,000 cannot be avoided. What would be the effect of this discontinuance on Gata's overall net operating income?

A) Decrease of $48,000.
B) Decrease of $6,000.
C) Increase of $6,000.
D) Increase of $48,000.

Net Operating Income

The total profit of a business after operating expenses are subtracted from gross profit but before deducting interest and taxes.

Contribution Margin

The amount of revenue remaining after deducting variable costs, which can be used to cover fixed costs and contribute to profit.

Fixed Costs

Costs that do not change with the level of production output, such as rent, salaries, and insurance.

  • Assess the consequences of ceasing a department or product line on a firm's comprehensive net operating income.
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Tabby SchettleDec 18, 2024
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