San Bernardino Industries Has Three Product Lines, A, B, and C

question 27

Multiple Choice

San Bernardino Industries has three product lines, A, B, and C. The following information is available: $$\begin{array} { l l l l } & \underline { \mathrm { A } } & \underline { \mathrm { B } } & \underline { \mathrm { C } } \\\text { Sales } & \$ 100,000 & \$ 90,000 & \$ 88,000 \\\text { Variable costs } & \underline{76,000} & 48,000 & \underline{79,000} \\\text { Contribution margin} & \$ 24,000 & \$ 42,000 & \$ 9,000\\\text { Fixed costs: } & & & \\\text { Avoidable } & \mathbf { 9 , 0 0 0 } & 18,000 & 3,000 \\\text { Unavoidable } & \underline { 6,000 } & \underline { 9,000 } & \underline {9,400 } \\\text { Operating income } & \underline { \$ 9,000 } & \underline { \$ 15,000 } & \underline {( \$ 3,400) }\end{array}$$ Assuming product line C is discontinued and the space formerly used to produce product C is rented for $15,000 per year, operating income will:

• A) increase $14,400
• B) increase $9,000
• C) increase $6,600
• D) increase $15,000

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Definitions:

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EEG

Electroencephalography, a technique used to record the electrical activity of the brain, useful in diagnosing epilepsy, sleep disorders, and other neurological conditions.

Alan Hodgkin

A British physiologist who, alongside Andrew Huxley, described the ionic mechanisms that underlie the generation of the action potential in neurons.

Andrew Huxley

A British physiologist and biophysicist awarded the Nobel Prize for his work on the nerve impulse and muscle contraction.