Question

A segment of Hazzard Inc. has the following data:

Sales: $200,000
Variable Expenses: 140,000
Fixed Expenses: 100,000

If this 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

If a segment of Hazzard Inc. is eliminated, the remaining company will experience changes in fixed expenses and cost allocation.

Step-by-step explanation:

Effect on the Remaining Company

If the segment of Hazzard Inc. is eliminated, the remaining company will be affected in terms of both fixed expenses and allocation of costs. With the elimination of the segment, 50% of the fixed expenses will be eliminated. The rest of the fixed expenses will be allocated to the segments of the remaining company.

This means that the remaining company will have a decreased total fixed expense and an increase in allocated fixed expenses from the eliminated segment. The impact on the remaining company's overall profitability will depend on the specific amounts of fixed expenses and the revenues generated by the other segments.