Question

Geo​ Company's western​ territory's forecasted income statement for the upcoming year is as​ follows: Sales revenue $ 850 comma 000 Variable costs ​(530 comma 000​) Contribution margin $ 320 comma 000 Fixed costs ​(500 comma 000​) Operating loss ​$(180 comma 000​) The​ company's management is considering dropping the western territory and has determined that 80​% of the fixed costs are avoidable. What is the change in the forecasted operating loss for the upcoming year if the western territory is​ dropped? Assume the company predicts an operating loss across the entire company. A. The loss will be reduced by $ 80 comma 000. B. The loss will be reduced by $ 400 comma 000. C. The loss will be increased by $ 80 comma 000. D. The loss will be increased by $ 400 comma 000.

Answer 1

A. The loss will be reduced by $ 80 comma 000.

Step-by-step explanation:

The computation change in the forecasted operating loss is shown below:

= Operating loss - fixed cost × remaining percentage

= $180,000 - $500,000 × 20%

= $180,000 - $100,000

= $80,000

Since the 80% of the fixed cost is avoidable so we take the remaining percentage i.e 20%

All other information which is given is not relevant, Hence, ignored it