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The management of Bayside Company is considering whether one of the departments in its retail stores should be eliminated. The contribution margin in the department is $150,000 per year. Fixed expenses allocated to the department are $130,000 per year. It is estimated that $120,000 of these fixed expenses will be eliminated if the department is discontinued. Which costs are irrelevant to this decision? The common fixed costs of $10,000 (or $130,000-$120,000) are irrelevant to this decision. If the department is eliminated, what will be the impact on the company’s overall net operating income?
Expert Answer
| Please find below the answer and please give thumbs up | |
| Statementshowing Computations | |
| Paticulars | Amount |
| Contribution Margin | 150,000.00 |
| Avoidable Fixed costs or traceable fixed costs | (120,000.00) |
| Net income | 30,000.00 |
| If department is eliminated Overall net operating income of company would decrease by $30,000 |
