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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