Question

is considering permanently shiutting down a department that has an annual contribution margin of $25,000 and $75,000 in annual fixed costs. Of the fixed costs, $19,500 cannot be avoided. What would the annual financial advantage (disadvantage) for corp. if the company shuts down the department

Answer 1

Avoidable fixed costs = $75,000 - $19,500 = $55,500

Segment margin = Contribution margin - Avoidable fixed costs

Segment margin = $25,000 - $55,500

Segment margin = -$30,500

If the department were eliminated, the company would eliminate the department's negative segment margin of $30,500