The Following Information Relates to Next Year's Projected Operating Results

question 236

Multiple Choice

The following information relates to next year's projected operating results of the Children's Division of Grunge Clothing Corporation: If the Children's Division is eliminated, $170,000 of the above fixed expenses could be avoided. The annual financial advantage (disadvantage) for the company of eliminating this division should be:

• A) ($300,000)
• B) $30,000
• C) ($30,000)
• D) $300,000

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Definitions:

Inflationary Gap

The difference between the actual output of an economy and the output it would produce without inflation, indicating an overheated economy.

Recessionary Gap

A situation where the real GDP is lower than the potential GDP at full employment, indicating underutilized resources.

Inflationary Gap

A scenario where aggregate demand exceeds aggregate supply at the level of full employment, leading to an increase in general price levels.

Equilibrium GDP

The level of Gross Domestic Product where aggregate supply equals aggregate demand, indicating an economy in balance without tendency to change.