Granfield Company is considering eliminating its backpack division, which reported a loss for the recent year of $42,000 as shown below

Granfield Company is considering eliminating its backpack division, which reported a loss for the recent year of $42,000 as shown below.
 

Segment Income (Loss)
Sales    $ 960,000
Variable costs    475,000
Contribution margin    485,000
Fixed costs    527,000
Income (loss)    $ (42,000)

If the backpack division is dropped, all $475,000 of its variable costs are avoidable, and $210,800 of its fixed costs are avoidable. The impact on Granfield’s income from eliminating this business segment would be:

Multiple Choice

$274,200 increase


$274,200 decrease Correct

$485,000 decrease


$485,000 increase


$210,800 increase

Explanation
Segment Elimination Analysis    Continue    Eliminate    Income Increase (Decrease)
Sales    $ 960,000    $ 0    
Variable costs    475,000    0    
Contribution margin    485,000    0    
Fixed costs    527,000    316,200    
Income (loss)    $ (42,000)    $ (316,200)    $ (274,200)