Question

Fabri Corporation is considering eliminating a department that has an annual contribution margin of $29,000 and $71,000 in annual fixed costs. Of the fixed costs, $13,500 cannot be avoided. The annual financial advantage (disadvantage) for the company of eliminating this department would be:

Answer 1

$28,500

Step-by-step explanation:

The computation of the annual financial advantage or disadvantage of the company is shown below:

In the case of continue, the amount is

Loss = Annual Contribution margin - annual fixed cost

= $29,000 - $71,000

= $42,000 Loss

In the case of elimination, the amount is

As it is given that the $13,500 fixed cost cannot be avoided that means there is a loss of $13,500

So, the saving is

= $42,000 - $13,500

= $28,500