Q6. KK Ltd. has two divisions, division X and division Y. Both divisions are operating at a loss and management is planning to eliminate these divisions. As per the division income statement, the contribution margin of X and Y is SAR450 and SAR 350 respectively. As per the breakdown of traceable fixed costs, avoidable fixed costs are SAR 475 and SAR 325 respectively. The general rule of keep or drop decisions shows that we should:

1. Keep X and drop Y
2. Keep X and Y both
3. Keep Y and drop X
4. Drop both divisions

Answer rating: 100% (QA)

Increase or Decrease in net income Avoidable fixed costs Contribution margin X SAR 475 SAR ... View the full answer