Marisols Sunglass Companys western territorys forecasted inc

Marisol\'s Sunglass Company\'s western territory\'s forecasted income statement for the upcoming year is as follows: Sales revenue Variable costs Contribution margin Fixed costs Operating loss $850,000 (530,000) $320,000 (500,000) $(180,000) The company\'s management is considering dropping the western territory and has determined that $310,000 of the fixed expenses is avoidable. What is the change in Marisol\'s Sunglass Company\'s forecasted operating for the upcoming year if the western territory is dropped? Assume the company predicts an operating loss across the entire company O A. Operating profit will increase by $320,000. O B. Operating loss will increase by $10,000. C. O D. Operating profit will decrease by $320,000. Operating loss will decrease by $10,000.

Solution

The answer is \"B. Operating loss will increase by $10,000\".

If the western territory is dropped then operating loss will be 500,000 - 310,000 = $190,000

Forecasted operating loss = $180,000

So, change in the forecasted operating for the upcoming year if the western territory is dropped that the operating loss will INCREASE by 190,000 - 180,000 = $10,000