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Logan Corporation Is Considering a Eliminating a Department That Has

question 152

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Logan Corporation is considering a eliminating a department that has incurred losses over the past several years.The department has a contribution margin of $32,000 per year.The fixed costs charged to the department total $37,000.$15,000 of the fixed costs is avoidable.If the department is eliminated,what would be the effect on the corporation's operating income?

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Definitions:

Allocative Inefficiency

Occurs when resources in an economy are not allocated optimally, leading to outcomes where it is possible to improve someone's well-being without worsening others'.

Profit-Maximizing

A strategy or process employed by businesses to determine the price and output level that generates the most profit.

Monopoly

A market structure characterized by (1) a single seller of a well-defined product for which there are no good substitutes and (2) high barriers to the entry of any other firms into the market for that product.

Vigorous Competition

Vigorous competition refers to a market condition characterized by strong rivalry among firms, aiming to outperform one another in price, quality, and service.