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22 May, 16:19

Roger Rabbit Enterprises is considering whether to discontinue a division that generates a total contribution margin of $66,000 per year Fixed manufacturing overhead allocated to this division is $50,000, of which 19,000 is unavoidable. If Roger Rabbit Enterprises were to eliminate this division, the effect on the company's operating income would be a (n) O A. decrease in total operating income of $35,000 O B. increase in total operating income of $47,000. O C. increase in total operating income of $35,000. O D. decrease in total operating income of $47,000

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  1. 22 May, 16:51
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    A. decrease in total operating income of $35,000

    Explanation:

    As provided the contribution generated today = $66,000

    Now, when the firm chooses to discontinue operations then, this will be not earned.

    Further the operating income earlier from this division shall be:

    Contribution - Fixed cost = $66,000 - $50,000 = $16,000

    Now, this shall not be earned, thus company will lose $16,000

    Thus attributable fixed cost shall be $50,000 - $19,000 = $31,000

    Therefore, contribution lost - Fixed cost unavoidable = $66,000 - $31,000 = $35,000 shall be the operating loss now.

    Thus, with $35,000 the operating profit will decrease.
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