SmartCard Is Considering Eliminating One of Its Product Lines

question 31

Multiple Choice

SmartCard is considering eliminating one of its product lines.The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance.What financial effects occur if the product line is discontinued?

• A)Net income will decrease by the amount of the contribution margin of the product line being discontinued.
• B)The company's total fixed costs will increase.
• C)Total fixed costs will decrease by the amount of the product line's fixed costs.
• D)Net income will decrease by the amount of the product line's fixed costs.

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Definitions:

Operating Plan

A document outlining the steps and resources required to achieve organizational goals within a specific timeframe.

Sole Proprietorship

A business owned and operated by a single individual, with no distinction between the business and the owner.

Business Debts

Financial obligations that a business owes to creditors, which can include loans, bonds, and other forms of borrowing.

Liability

A legal obligation or responsibility that can be enforced by law, typically involving debts or financial obligations.