Department M generates a total contribution margin of Rs. 100,000 but reports a net loss of Rs. 20,000 after absorbing Rs. 120,000 of fixed costs. If Department M is shut down, Rs. 90,000 of these fixed costs will continue to be incurred (unavoidable apportioned general costs). From a purely financial perspective, should Department M be shut down?

Correct answer: C) No, because shutting it down will cause the company's overall profit to decrease by Rs. 70,000.

Explanation

Contribution margin lost if closed = Rs. 100,000. Fixed costs saved if closed = Total fixed costs (120,000) - Unavoidable costs (90,000) = Rs. 30,000 avoidable fixed costs. Net financial impact = 100,000 lost contribution - 30,000 saved fixed costs = Rs. 70,000 net decrease in total company profit.