Gata CoPlans to Discontinue a Department That Has a $48,000 Contribution

question 61

Multiple Choice

Gata Co.plans to discontinue a department that has a $48,000 contribution margin and $96,000 of fixed costs.Of these fixed costs,$42,000 cannot be avoided.What would be the effect of discontinuing the department on Gata's overall operating income?

• A) An increase of $6,000.
• B) A decrease of $6,000.
• C) An increase of $48,000.
• D) A decrease of $48,000.

Comprehend the concept of transaction costs in resolving externality problems.

Differentiate between pollution permits and corrective taxes in internalizing externalities.

Discuss the economic efficiency of corrective taxes versus pollution regulation.

Understand the mechanisms and effects of tradable pollution permits in pollution management.

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Definitions:

Salaries Payable

A liability account that records the amount of salaries owed to employees but not yet paid.

Accrued

Income earned or expenses incurred before cash has been exchanged, often recognized in the accounting process.

Insurance Policy

A legal contract between an insurer and the insured, outlining the terms, coverages, premiums, and conditions under which the insurer agrees to compensate the insured.

Adjusting Entry

A journal entry made at the end of an accounting period to allocate revenues and expenses to the period in which they actually occurred.