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18 December, 01:38

Youngstown Construction plans to discontinue its roofing segment. Last year, this segment generated a contribution margin of $65,000 and incurred $70,000 in fixed costs. Discontinuing the segment will allow the company to avoid half of the fixed costs. What effect is expected to occur to the company's overall profit? A. a decrease of $5,000 B. a decrease of $30,000 C. a decrease of $5,000 D. an increase of $30,000

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  1. 18 December, 01:53
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    B. a decrease of $30,000

    Explanation:

    The computation of company's overall profit is shown below:-

    To continue = Contribution margin - Fixed cost

    = $65,000 - $70,000

    Loss = $5,000

    To Discontinue = Unavoidable fixed cost : 2

    = $70,000 : 2

    = $35,000

    So, Net Loss = To continue (Loss) - To Discontinue

    = $5,000 - $35,000

    = $30,000

    Therefore there is a decrease of $30,000
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