Accelerate Rollerblades Has Three Product Lines-D,E,and F The Company Is Deciding Whether to Drop Product Line F

question 92

Multiple Choice

Accelerate Rollerblades has three product lines-D,E,and F.The following information is available: $$\begin{array} { | l | r | r | r | } \hline & { \mathrm { D } } & \mathrm { E } & \mathrm { F } \\\hline \text { Sales revenue } & \$ 90,000 & \$ 60,000 & \$ 31,000 \\\hline \text { Variable costs } & \underline { ( 20,000 } ) & \underline { ( 15,000 } ) & \underline { ( 11,000 } ) \\\hline \text { Contribution margin } & \$ 70,000 & \$ 45,000 & \$ 20,000 \\\hline\text { Fixed costs } & \underline { ( 20,000 } ) & \underline { ( 5000 ) } & \underline { ( 24,000 } ) \\\hline \text { Operating income (loss) } & \$ 50,000 & \$ 40,000 & \$ ( 4000 ) \\\hline\end{array}$$ The company is deciding whether to drop product line F because it has an operating loss.Assume that $15,000 of total fixed costs could be eliminated by dropping F.What effect would this decision have on operating income?

• A) Operating income will increase by $35,000.
• B) Operating income will increase by $20,000.
• C) Operating income will decrease by $5000.
• D) Operating income will decrease by $15,000.

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Definitions:

Standard Deviation

A measure of the amount of variation or dispersion in a set of values.

Confidence Interval

A range of data figures, acquired from sample analysis, predicted to include the value of an unacknowledged population characteristic.

Confidence Interval

A range of values, derived from sample statistics, that is believed to contain the true value of a population parameter with a specified level of confidence.

Population Proportion

The fraction or percentage of members in a population that exhibit a particular trait or characteristic.