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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Molina Medical Supply Company is trying to decide whether or not to continue distributing hospital supplies. The following information is available for Molina's business segments. Assume that all direct fixed costs could be avoided if a segment is dropped and that the total common fixed costs would remain unchanged if a segment is dropped.
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| Â | Hospital Supplies | Retail Stores | Mail Order | |||
| Sales | $120,000 | Â | $440,000 | Â | $360,000 | Â |
| Variable costs | 64,000 | Â | 200,000 | Â | 140,000 | Â |
| Contribution Margin | 56,000 | Â | 240,000 | Â | 220,000 | Â |
| Direct Fixed Costs | 50,000 | Â | 80,000 | Â | 90,000 | Â |
| Allocated common fixed costs | 20,000 | Â | 70,000 | Â | 60,000 | Â |
| Net Income | ($14,000) | Â | $90,000 | Â | $70,000 | Â |
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Assume that is hospital supplies were dropped, retail stores would increase by 25%. What would the impact on overall profitability be if the :hospital supplies" segment is eliminated?
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A. Income with increase by $60,000
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B. Income will increase by $104,000
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C. Income will increase by $14,000
D. Income would increase by $54,000
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