Reference no: EM13593026

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.

	Hospital Supplies		Retail Stores		Mail Order
Sales	$120,000		$440,000		$360,000
Variable costs	64,000		200,000		140,000
Contribution Margin	56,000		240,000		220,000
Direct Fixed Costs	50,000		80,000		90,000
Allocated common fixed costs	20,000		70,000		60,000
Net Income	($ 14,000)		$ 90,000		$ 70,000

If hospital supplies are dropped, what would happen to profit?

Increase by $76,000.

Decrease by $6,000.

Decrease by $114,000.

Increase by $14,000.