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When a segment of a business is performing poorly, management must consider eliminating it. Segments...

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Accounting

When a segment of a business is performing poorly, management must consider eliminating it. Segments with contribution margin less than avoidable fixed costs are candidates for elimination.

Cabby Jewelers has two divisions, the ring division and the necklace division. The ring division has shown a net loss of $40,000 for the past year. The necklace division has shown net income of $10,000 for that same period of time. The ring division has avoidable expenses of $30,000 and unavoidable expenses of $20,000. With revenues of $90,000, should the ring division be eliminated? multiple choice

A) Yes, revenue exceeds avoidable costs by $60,000.

B) No, revenue exceeds avoidable costs by $60,000.

C) No, revenue exceeds avoidable costs by $70,000.

D) Yes, revenue exceeds avoidable costs by $70,000.

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