Kim Sunshades Company's western territory's forecasted income statement for the upcoming year is as follows
Sales revenue $850,000
Variable costs (540,000 )
Contribution margin $310,000
Fixed costs (480,000 )
Operating loss $(170,000 )
The company's management is considering dropping the western territory and has determined that 80% of the fixed costs are avoidable. What is the change in the forecasted operating loss for the upcoming year if the western territory is dropped? Assume the company predicts an operating loss across the entire company.
A) The loss will be reduced by $74,000.
B) The loss will be increased by $74,000.
C) The loss will be reduced by $384,000.
D) The loss will be increased by $384,000.
A .A)
Expected decrease in revenue $(850,000 )
Expected decrease in variable costs $540,000
Expected decrease in fixed costs (480,000 x 80%) 384,000
Expected decrease in in total costs 924,000
Expected decrease in forecasted loss $74,000
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