Reference: 09-09
Bingham Company Manufactures and Sells Product J Bingham Company Anticipates No Change in the Operating Results for for Last

question 17

Multiple Choice

Reference: 09-09
Bingham Company manufactures and sells Product J. Results for last year's manufacture and sale of Product J are as follows: $$\begin{array} { | l | l | l | } \hline \text { Sales: } 10,000 \text { units at } \$ 160 \text { each } && \$ 1,600,000 \\\hline \text { Less costs: } & & \\\hline \text { Variable production costs } & 960,000 & \\\hline \text { Sales commissions: } 15 \% \text { of sales } & 240,000 & \\\hline \text { Salaries of line supervisors } & 195,000 & \\\hline \text { Traceable fixed advertising expense } & 180,000 & \\\hline \text { Fixed general factory overhead (allocated to } & & \\\hline \text { products on the basis of square feet occupied) } & 170,000 & \\\hline \text { Total costs } & & 1,745,000 \\\hline \text { Net loss } & & \$ ( 145,000 ) \\\hline\end{array}$$ Bingham Company anticipates no change in the operating results for Product J in the foreseeable future if the product is produced. Bingham is re-examining all of its products and is trying to decide whether to discontinue the manufacture and sale of Product J. The company's total fixed factory overhead cost would not be affected by this decision.
-Assume that discontinuing the manufacture and sale of Product J will not affect the sale of other products. If the company discontinues Product J, the change in annual net income due to this decision will be a:

• A)$145,000 increase.
• B)$25,000 decrease.
• C)$315,000 decrease.
• D)$170,000 decrease.

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Definitions:

Opportunity Costs

Making a choice results in the loss of potential profit that could have been earned from choosing differently.

Increasing Opportunity

In economic terms, refers to the increasing cost associated with producing additional units of a good, implying that producing more of one good requires sacrificing increasingly larger amounts of another good.

Production Possibilities

The various combinations of goods and services that can be produced by an economy given its available resources and technology, illustrating potential trade-offs and efficiency.

Comparative Advantage

An economic principle that states a country should produce and export goods for which it is more efficient at producing than other countries, and import goods that it is less efficient at producing.