Question

73. Under activity-based costing, where the cost driver is the material moves, what would be the material handling costs traced to one set of draperies? 1) $17.50 2) $35.00 3) $46.67 4) $70.00 74. A company has several product lines. One has a contribution margin of $100,000 and fixed costs totalling $120,000. If this product is dropped, $80,000 of the costs will continue unchanged. If the company drops this product, what will be the effect on the company's net operating income? 1) It will decrease by $100,000 2) It will increase by $60,000 3) It will decrease by $60,000 4) It will increase by $20,000 75. The Farell Co. Ltd. had a net loss of $60,000 last year. The following data for last year are available: Dividends paid $40,000 Amortization expense $30,000 Proceeds from issuing shares $100,000 Increase in accounts payable $15,000 Retirement of debt $50,000 What was the amount of net cash provided (or used) from operations last year? a) $85,000 b) $(30,000) c) $(15,000) d) $(5,000) e) $(70,000)

Answer 1

(73)

data is insufficient for solution

(74)

OPTION 3: it will decrease by $60000

EXPLANATION:

Here, Unavoidable fixed cost = $80000

If product line is continued,

Net operating loss = Contribution margin - Total fixed cost

= $100000 - $120000 = $20000

If product line is dropped,

net operating loss will be equal to unavoidable fixed cost. i.e. $80000

Thus, If product line is dropped,

decrease in net operating income = $80000 - $20000 = $60000