Diva Footwear Is Contemplating If It Should Continue Producing Platform

question 39

Multiple Choice

Diva Footwear is contemplating if it should continue producing platform shoes.The following information is available for the company's segments. $\begin{array}{lrrr}&\text { Platform Shoes }&\text { Athletic Shoes }&\text { Boots }\\\hline\text { Sales } & \$ 120,000 & \$ 420,000 & \$ 360,000 \\\text { Variable costs } & 64,000 & 220,000 & 140,000\\\text { Contribution margin } & 56,000 & 200,000 & 220,000 \\\text { Direct fixed costs } & 45,000 & 70,000 & 90,000 \\\text { Allocated fixed costs } & 20,000 & 70,000 & 60,000 \\\text { Net income }&(\$9,000) &\$60,000&\$70,000\end{array}$ If platform shoes are dropped, sales of athletic shoes are expected to drop by 10%.What impact will occur to Diva Footwear's net income?

• A)Income will decrease by $11,000.
• B)Income will decrease by $31,000.
• C)Income will decrease by $53,000.
• D)Income will increase by $9,000.

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Definitions:

Activity-Based Costing

A costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption.

Supporting Assembly

Components or materials put together as part of a larger item or system in the manufacturing process.

Activity-Based Costing

An accounting technique that distributes indirect and overhead costs to distinct activities, offering a more accurate determination of product costs.

Total Cost

Represents the sum of all costs incurred in the production of goods or the provision of services.