Soar Incorporated is considering eliminating its mountain bike division, which reported a loss for the recent year of $5,400 as shown below.

Soar Incorporated is considering eliminating its mountain bike division, which reported a loss for the recent year of $5,400 as shown below.
 

Segment Income (Loss)
Sales    $ 1,110,000
Variable costs    884,000
Contribution margin    226,000
Fixed costs    231,400
Income (loss)    $ (5,400)

If the mountain bike division is dropped, all $884,000 of its variable costs are avoidable, and $69,420 of its fixed costs are avoidable. The impact on income for eliminating this business segment would be:


Multiple Choice

$226,000 increase


$64,020 decrease


$69,420 decrease


$156,580 decrease Correct

$226,000 decrease

Explanation
Segment Elimination Analysis    Continue    Eliminate    Income Increase (Decrease)
Sales    $ 1,110,000    $ 0    
Variable costs    884,000    0    
Contribution margin    226,000    0    
Fixed costs    231,400    161,980    
Income (loss)    $ (5,400)    $ (161,980)    $ (156,580)