87. Mili Co. plans to discontinue a division with a

$20,000 contribution margin. Overhead allocated to the division is $50,000, of which $5,000 cannot be eliminated.

The effect of this discontinuance on Mili’s pretax income would be an increase of

a. $ 5,000

b. $20,000

c. $25,000

d. $30,000 88. Following are the operating results of the two segments of Parklin Corporation:

** CMA adapted Segment A Segment B Total Sales $10,000 $15,000 $25,000 Variable cost of goods sold 4,000 8,500 12,500 Fixed cost of goods sold 1,500 2,500 4,000 Gross margin 4,500 4,000 8,500 Variable selling and administrative 2,000 3,000 5,000 Fixed selling and administrative 1,500 1,500 3,000 Operating income (loss) $ 1,000 $ (500) $ 500 Fixed costs of goods sold are allocated to each segment based on the number of employees. Fixed selling and administrative expenses are allocated equally. If Segment B is eliminated, $1,500 of fixed costs of goods sold would be eliminated. Assuming Segment B is closed, the effect on operating income would be

a. An increase of $500.

b. An increase of $2,000.

c. A decrease of $2,000.

d. A decrease of $2,500.