A company is considering whether to eliminate a segment and has compiled the following information:
Proposal Analysis Total(existing) Segment(drop) Proposed(remaining)
Sales ($210/unit) $26,250 $13,125 $13,125
Variable costs $10,500 $6,300 $4,200
Contribution margin $15,750 $6,825 $8,925
Fixed costs $11,100 $2,250 $8,850
Net income $4,650 $4,575 $75
Should the company eliminate or keep the segment?
Eliminate the segment since unavoidable expenses are $2,250 of fixed costs
Keep the segment since the segment's total avoidable expenses are $4,500
Keep the segment since eliminating it will result in a $4,575 reduction in net income compared to the existing business
Eliminate the segment since the contribution margin of the segment is $1,725 less than total allocated expenses