A Company Is Considering Eliminating a Product Line

question 115

Multiple Choice

A company is considering eliminating a product line. The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance. If the product line is discontinued

• A) total net income will increase by the amount of the product line's fixed costs.
• B) total net income will decrease by the amount of the product line's fixed costs.
• C) the contribution margin of the product line will indicate the net income increase or decrease.
• D) the company's total fixed costs will decrease.

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Definitions:

Particular Purpose

A specific intent or use for which a product or service is bought, indicating reliance on the seller's advice or expertise.

Implied Warranties

Legal guarantees assumed in transactions, such as the assurance that a product will perform as advertised or is fit for its intended use.

Operation Of Law

Changes in legal status or rights due to the application of law, rather than as a result of an agreement or court order.

Flower Pots

Containers used for planting, growing, and displaying flowers and other plants, made from various materials.