Use the Following Information to Answer the Following Questions

question 64

Multiple Choice

Use the following information to answer the following Questions
Omar Industries manufactures two products: Regular and Super. The results of operations for 20x1 follow.

Fixed manufacturing costs included in cost of goods sold amount to $3 per unit for Regular and $20 per unit for Super. Variable selling expenses are $4 per unit for Regular and $20 per unit for Super; remaining selling amounts are fixed.

-Omar Industries wants to drop the Regular product line. If the line is dropped, company-wide fixed manufacturing costs would fall by 10% because there is no alternative use of the facilities. What would be the impact on operating income if Regular is discontinued?

• A) $0.
• B) $10,400 increase.
• C) $20,000 increase.
• D) $39,600 decrease.
• E) None of the answers is correct.

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Definitions:

Predetermined Overhead Rate

Predetermined Overhead Rate is a rate calculated before a period begins, used to allocate estimated overhead costs to products or job orders based on a selected activity base.

Annual Overhead Costs

Refers to the total expenses that are not directly tied to a specific product or service but are required for the business to operate, accumulated over a year.

Direct Labor Costs

The wages paid to workers who are directly involved in the production of goods or the provision of services.

Indirect Labor

Labor costs associated with support work that does not directly contribute to the manufacture of products or the provision of services, such as maintenance and supervisory wages.