Which of the following is not relevant when deciding whether or not to discontinue a product...
Which of the following is not relevant when deciding whether or not to discontinue a product line?
A.
The product line's contribution margin.
B.
Fixed costs that cannot be avoided by discontinuing the line.
C.
The effect on the sales of other products if the product line is discontinued.
D.
Fixed costs that can be avoided by discontinuing the line.
Homework Answers
| Option B is the answer | |
|
Increase (Decrease) in operating income if a division is discontinued = Avoidable fixed costs - Contribution margin lost. Comment if you face any issues |
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1.
Prepare an incremental analysis to show whether Security
FirstSecurity First should discontinue the industrial systems
product line.
2.
Prepare contribution margin income statements to show Security
First's total operating income under the two alternatives: (a)
with the industrial systems line and (b) without the line. Compare
the difference between the two alternatives' income numbers to
your answer to Requirement 1. What have you learned from this
comparison?
Company accountants estimate that discontinuing the industrial systems line will decrease fixed...
The managers of Riverside Designs are considering dropping one of their product lines. The product line typically has the following revenue and costs: Sales $125,000 Variable costs 85,000 Contribution margin 40,000 Fixed costs 45.000 Operating loss $ (5,000) If the product line is discontinued, $4,000 of the fixed costs would be avoided. Also, the freed-up capacity would generate $6,000 of additional contribution margin from the expansion of other product lines. If Riverside discontinues the product line, the effect on overall...
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