Question

QUESTION 26 The management of Furrow Corporation is considering dropping product L07E. The following data related to Product L07E was obtained from the company's accounting system Sales Variable expenses. Fixed manufacturing expenses. Fixed selling and administrative expenses $830,000 $365,000 $291,000 $166,000 In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $186,000 of the fixed manufacturing expenses and $106,000 of the fixed selling and administrative expenses are avoidable if product L07E is discontinued. What would be the effect on the company's overall net operating income if product L07E were dropped? O1. Overall net operating income would increase by $8,000 O 2. Overall net operating income would decrease by $173,000 O 3. Overall net operating income would decrease by $8,000 O 4. Overall net operating income would increase by $173,000 QUESTION 27 The practice of delegating decision-making authority to the lower levels of management in a company is O centralization performance evaluation decentralization authorization QUESTION 28 Controllable revenue would be included in a performance report fora A) B) C) D) Profit center No No Yes Yes Cost center No Yes Yes 0 A) B) C)

Answer 1

Solution 26:

Contribution margin from Product L07E = $830,000 - $365,000 = $465,000

Avoidable fixed cost = $186,000 + $106,000 = $292,000

Decrease in overall operating income on dropping product L07E = Loss of contribution margin - Saving in fixed cost

= $465,000 - $292,000 = $173,000

Hence option 2 is correct.

Solution 27:

Practice of delegating decision-making authority to the lower levels of management is "Decentralization"

Hence 3rd option is correct.

Solution 28:

Controllable revenue is included in a performance report of a

Profit Center - Yes

Cost Center - No

Hence option D is correct.