Use the Information Below to Answer the Following Questions

question 39

Multiple Choice

Use the information below to answer the following questions.
Travel Made Easy Ltd provides three services: International travel, Interstate travel, and Holiday Packages. The results for the year were as follows: The fixed costs have been shared equally between the three functions.
-Refer to the table above. Management is contemplating closing the Holiday Packages service; this would involve a cost saving of $40,000 per annum, namely the variable costs. The fixed costs are not expected to change. The best advice to management is:

• A) do not close the service, because profit would decrease by $90,000.
• B) close the service, and the business would make a profit of $110,000.
• C) close the service and save $40,000.
• D) do not close the service, because profit would decrease by $60,000.

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Definitions:

Overdue Account

A financial account that has not been paid by its due date, thereby incurring late fees or other penalties.

Current Liabilities

Short-term financial obligations due within one year or within the entity's operating cycle, whichever is longer, necessary for the ongoing operations of the business.

Interest Expense

The charge an entity incurs for using borrowed capital over a set period.

Interest Payable

The amount of interest expense that has accumulated but has not been paid by the end of the accounting period.