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

question 29

Multiple Choice

Kule,Inc.produces three different lines of car racks for transporting large,bulky items.

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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Definitions:

Variable Costs

Costs that vary in direct proportion to changes in levels of an activity or production volume.

Fixed Costs

These are expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.

Net Income

The total earnings of a company after subtracting all of its expenses, including taxes and operating expenses, from its total revenues.

Required Sales

Required sales refer to the sales volume or revenue needed to cover all fixed and variable costs of a business within a specific period.