Question

The Alligator segment of Louisiana Specialty Meats is operating at a loss and has the following data: Sales $600,000 Variable expenses 420,000 Fixed expenses 300,000 If the Alligator segment is eliminated, what will be the effect on the remaining company? Assume that 50% of the fixed expenses will be eliminated and the rest will be allocated to the segments of the remaining company.

Answer 1

$30,000 decrease.

Step-by-step explanation:

If the Alligator segment is eliminated, the $180,000 contribution margin ($600,000 - $420,000) will be eliminated but only $150,000 ($300,000 x .50) of the fixed costs will be eliminated resulting in a decrease of $30,000 net income ($150,000 fixed cost - $180,000 contribution margin).