Manor Company plans to discontinue a department that has a contribution margin of $24,000 and $48,000 in fixed costs

Accounting Aug 19, 2020

Manor Company plans to discontinue a department that has a contribution margin of $24,000 and $48,000 in fixed costs. Of the fixed costs, $21,000 cannot be avoided. What would be the effect of discontinuing the department on Manor's overall operating income?

Expert Solution

Computation of the effect of discontinuing the department on Manor's overall operating income:-

The effect of discontinuing the overall operating income = (Fixed costs - Avoidable fixed costs) - Contribution margin

= ($48,000 - $21,000) - $24,000

= $3,000 (Increase)

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