A department probably would be considered for elimination if

A department probably would be considered for elimination if it had

a. a positive contribution margin and a net income from operations.

b. a positive contribution margin and a net loss from operations.

c. a negative contribution margin and a net loss from operations.

d. a net loss, regardless of the contribution margin.

Solution

Option C is the answer

As we know contribution is excess of sales over variable costs, negative contribution margin indicates that department is not even able to cover its variable costs. And then the department has additional fixed costs which lead to higher net loss from operations. Hence, a department with negative contribution margin and a net loss from operations calls for elimination