Question

Based on the segment income statement below, Chips, Inc. is considering eliminating its Barbecue Division line. If Barbecue Division were eliminated, profitability would

1) Increase
2) Decrease
3) Remain the same
4) Cannot be determined

Answer 1

If Chips, Inc. were to eliminate its Barbecue Division line, the profitability would decrease.

Step-by-step explanation:

Based on the segment income statement, if Chips, Inc. were to eliminate its Barbecue Division line, the profitability would decrease.

This can be determined by looking at the division's contribution margin, which is negative. The contribution margin measures how much each division contributes to covering fixed costs and generating profit.

Since the Barbecue Division has a negative contribution margin, eliminating it would reduce overall profitability.