Kule,IncProduces Three Different Lines of Car Racks for Transporting Large,bulky

question 5

Multiple Choice

Kule,Inc.produces three different lines of car racks for transporting large,bulky items.
$\begin{array}{lccc}&\underline{\text { Bicycle }} &\underline{ \text { Luggage }} &\underline{ \text { Skis } }\\\text {Sales}&\$ 140,000 & \$ 100,000 & \$ 160,000 \\\text {Less: cost of goods sold}&110,000 & 110,000 & 140,000 \\\text {Gross margin}&30,000 & (10,000) & 20,000\end{array}$
Total company net annual profit = $40,000
Included in the cost of goods sold is $12,000 of annual rent (a fixed cost) that is distributed equally among the three product lines.As a consultant to Kule,will you recommend that it drop the luggage rack line?

• A) No,dropping the line will actually decrease overall net profits.
• B) Yes,dropping the line will increase company net profits.
• C) No,dropping the line will result in increased fixed costs.
• D) Yes,dropping the line will reduce joint costs.
• E) Yes,dropping the line will reduce cost of goods sold and increase revenues.

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