Abel Company Produces Three Versions of Baseball Bats: Wood, Aluminum

question 35

Multiple Choice

Abel Company produces three versions of baseball bats: wood, aluminum, and hard rubber.A condensed segmented income statement for a recent period follows: $\begin{array}{lrrrr}&\text { Wood }&\text { Aluminum }&\text { Hard Rubber }&\text { Total }\\\text { Sales } & \$ 500,000 & \$ 200,000 & \$ 65,000 & \$ 765,000 \\\text { Variable expenses } & 325,000 & 140,000 & 58,000 & 523,000 \\\text { Contribution margin } & 175,000 & 60,000 & 7,000 & 242,000 \\\text { Fixed expenses } & 75,000 & 35,000 & 22,000 & 132,000 \\\text { Net income (loss) }&\$100,000&\$25,000&\$(15,000) &\$110,000\end{array}$ Assume none of the fixed expenses for the hard rubber line are avoidable.What will be total net income if the line is dropped?

• A)$125,000
• B)$103,000
• C)$105,000
• D)$140,000

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Definitions:

Income

Cash inflow, regularly obtained, as compensation for work or earnings from invested capital.

Average Tax Rate

The average tax rate is the proportion of total taxable income paid in taxes, calculated by dividing the total tax paid by the total income.

Marginal Tax Rate

The rate at which the last dollar of income is taxed.

Lump-Sum Tax Rate

A tax that is a fixed amount, no matter the change in circumstance of the taxed entity. This creates a situation where the tax burden falls more heavily on those with lower income or profit.