A study has been conducted to determine if one of the departments in Carry Corporation should be discontinued. The contribution margin in the department is $80,000 per year. Fixed expenses charged to the department are $95,000 per year.

A study has been conducted to determine if one of the departments in Carry Corporation should be discontinued. The contribution margin in the department is $80,000 per year. Fixed expenses charged to the department are $95,000 per year. It is estimated that $50,000 of these fixed expenses could be eliminated if the department is discontinued. These data indicate that if the department is discontinued, the yearly financial advantage (disadvantage) for the company would be:

Multiple Choice

• ($15,000)
• $15,000
• ($30,000)

  Correct
• $30,000

Explanation

Contribution margin	$	80,000
Avoidable fixed costs		50,000
Segment margin	$	30,000

If the department were eliminated, the company would lose the department’s segment margin of $30,000.