The Operations of Knickers Ltd Operating Income for Knickers Ltd

question 2

Multiple Choice

The operations of Knickers Ltd. are divided into the Pacers Division and the Bulls Division. Projections for the next year are as follows: $\begin{array} {llll}&\text { Pacers } & \text { Bulls } & \\&\text { Divisi on } & \text { Division } & \text { Total }\\\text {Sales}&£ 420,000 & £ 252,000 & £ 672,000\\\text {Variable costs}&147,000 & 115,500 & 262,500\\\text {Contributi on margin}&£ 273,000 & £ 136,500 & £ 409,500\\\text {Direct fixed costs}&126,000 & 105,000 & 231,000\\\text {Segment margin}&£ 147,000 & £ 31,500 & £ 178,500\\\text {Allocated common costs}&63,000 &47,250 &110,250\\\text {Operating income (loss) }&£ 84,000 & £(15,750) & £ 68,250\\\end{array}$ Operating income for Knickers Ltd. as a whole if the Bulls Division were dropped would be

• A)£99,750.
• B)£84,000.
• C)£68,250.
• D)£36,750.

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Definitions:

Rate of Return

A measure of the gain or loss on an investment over a specified period, expressed as a percentage of the investment's initial cost.

Desired Rate

An anticipated rate of return on investment or interest rate target, often set as a benchmark for financial decisions or investment appraisal.

Present Value Index

A calculation used to assess the profitability of an investment relative to its current cost, by discounting future cash flows.

Total Present Value

The sum of the present values of future cash flows expected from an investment or project, used in evaluating its attractiveness.