Consider the Following Portion of a Segmented Income Statement for the Year

question 123

Multiple Choice

Consider the following portion of a segmented income statement for the year just ended. Assume that the fixed expenses of Division X include $30,000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments nor reduce the common expenses. $\begin{array}{lr}&\text { Division } X\\\text { Sales } & \$ 100,000 \\\text { Variable manufacturing costs } & 60,000 \\\text { Gross profit } & \$ 40,000 \\\text { Fixed expenses (direct and allocated) } & 50,000 \\\text { Operating income (loss) } & \$(10,000) \end{array}$
What would be the effect on the firm's operating income if Division X were discontinued?

• A)increase $10,000
• B)decrease $40,000
• C)decrease $100,000
• D)decrease $10,000

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Definitions:

Less-Value Stock

Stock that is currently trading for less than the perceived value of the company, potentially indicating an undervalued investment opportunity.

Profit Allocation

The process of distributing a company's earnings among its shareholders, partners, or other stakeholders according to agreed-upon terms.

Preponderance Of Evidence

A standard of proof in civil cases, requiring that a claim be more likely true than not true.

De Jure Corporation

Latin for “lawful corporation” a corporation that has met the mandatory statutory provisions and thus received its certificate of incorporation.