Homework Answers
2. Since $16500 fixed cost is not avoidable that means it will occur even if we stop the production. So it is not relevant. Also by eliminating this department we will lose the related contribution. So financial advantage will be
= $73000 - $16500 - $27000
= $29500
Hence answer is option D.
3. In this question also only avoidable cost is relevant so financial disadvantage will be
= 960000 - 397000 - 212000 - 251000
= $100000
This is a disadvantage because we will lose this contribution.
Hence answer is option D.
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