Division B Earns a Contribution Margin of $200,000 and Has

question 90

Multiple Choice

Division B earns a contribution margin of $200,000 and has a divisional margin of $70,000. If Division B is closed, all of the direct divisional expenses and $110,000 of common expenses can be eliminated. These facts indicate that closing the division will cause the firm's operating income to

• A)increase by $90,000.
• B)decrease by $90,000.
• C)increase by $40,000.
• D)decrease by $40,000.

---

Definitions:

Equipment

Tangible, long-term assets used in the operation of a business to produce goods or provide services, usually subject to depreciation over their useful lives.

Cash Flow

The net amount of cash and cash-equivalents being transferred into and out of a business.

Operating Activities

Activities that relate to the primary, day-to-day operations of a business, such as selling products or providing services.

Prepaid Expenses

Assets on the balance sheet representing services or goods paid for upfront but not yet consumed.