Final answer:
If the department were discontinued, Parry Company's overall operating income would increase by $57,000 per year, as the remaining fixed expenses after discontinuation would be lower than the contribution margin the department brings in.
Step-by-step explanation:
In the scenario described for Parry Company, the department under consideration has a contribution margin of $70,000. The fixed expenses amount to $63,000, out of which $50,000 can be eliminated if the department is shut down. To calculate the change to the company's overall operating income if the department is discontinued, we subtract the remaining fixed expenses from the contribution margin:
Contribution Margin: $70,000
Fixed Expenses Eliminated: $50,000
Remaining Fixed Expenses: $63,000 - $50,000 = $13,000
The change in operating income = $70,000 (contribution margin) - $13,000 (remaining fixed expenses) = $57,000
Therefore, discontinuing the department would increase the company's overall operating income by $57,000 per year.