Alta Loma Industries Has Three Product Lines, A, B, and C

question 178

Multiple Choice

Alta Loma Industries has three product lines, A, B, and C. The following information is available: $$\begin{array} { l l l l } & \underline { \mathrm { A } } & \underline { \mathrm { B } } & \underline { \mathrm { C } } \\\text { Sales } & \$ 100,000 & \$ 90,000 & \$ 36,000 \\\text { Variable costs } & 76,000 & 48,000 & 27,000 \\\text { Contribution } & \$ 24,000 & \$ 42,000 & \$ 9,000\\\text { margin }\\\text { Fixed costs: }\\\text { Avoidable } & 9,000 & 18,000 & 3,000 \\\text { Unavoidable } & 6,000 & 9,000 & 8,400\\\text { Operating income }&\$9,000&\$15,000&\$2,400\end{array}$$ Assume that product line C is discontinued and replaced with product line B. This will double the production and sales of product line B without increasing fixed costs. Operating income will:

• A) increase $36,000
• B) increase $42,000
• C) increase $15,000
• D) increase $24,000

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Definitions:

Voidable

A term describing a legal contract or action that may be nullified or terminated at the discretion of one or both parties involved.

Covenant Not to Compete

An agreement where one party agrees not to enter into or start a similar profession or trade in competition against another party.

Ongoing Business

A company or commercial enterprise that continues to operate and engage in its activities, as opposed to one that is in the process of closing down or has ceased operations.

Noncompetition

An agreement, often within a contract, that restricts one party from competing directly with another party, usually after termination of the agreement.