Wallen corporation is considering eliminating a department that has an annual contribution margin of $80,000 and $160,000 in annual fixed costs. of the fixed costs, $90,000 cannot be avoided. the annual financial advantage (disadvantage) for the company of eliminating this department would be: garrison 16e rechecks 2017-12-15 multiple choice

a. $10,000
b. ($10,000)
c. $80,000
d. ($80,000)

$10,000

Explanation:

We need to find the segment margin of the deparment, which is equal to annual contribution margin minus avoidable fixed costs:

Wallen Corporation

Annual contribution margin            $80,000

Annual fixed costs                           $160,000

Unavoidable fixed costs                 $90,000

Avoidable fixed costs                     $70,000

Segment Margin  = Annual contribution margin - avoidable fixed costs

                             = $80,000 - $70,000

                             = $10,000

Therefore, if the company eliminated this department, it would have a financial advantage of $10,000, equivalent to the deparment's current segment margin.

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