The Western Company Is Considering the Addition of a New

question 79

Multiple Choice

The Western Company is considering the addition of a new product to its current product lines. The expected cost and revenue data for the new product are as follows: $\begin{array}{|r|r|}\hline \text { Annual Sales } & 3,000 \text { Units } \\\hline \text { Selling Price per Unit } & \$ 309 \\\hline \text { Variable Costs (Per Unit) } & \$ 130 \\\hline \text { Production } & \$ 50 \\\hline \text { Selling } & \\\hline \text { Avoidable Fixed Costs per Year: } & \$ 51,000 \\\hline \text { Production } & \$ 75,000 \\\hline \text { Selling } & \\\hline \text { Unavoidable Allocated Fixed Corporate } & \$ 54,000 \\\hline \text { Costs per Year } & \\\hline\end{array}$ If the new product is added to the existing product line, then sales of existing products will decline. Therefore, the contribution margin of the other existing product lines is expected to drop $78,000 per year.




-If the new product is added next year,what will be the increase in operating income resulting from this decision?

• A) $183,000.
• B) $207,000.
• C) $261,000.
• D) $387,000.

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Definitions:

Dissolution

The process of formally ending or dissolving a company, partnership or any legal entity so it no longer exists as a legal entity.

Merger

The combination of two or more companies into a single entity, often with the goal of achieving greater efficiency, market share, or competitiveness.

Consolidation

The process of combining multiple accounts or businesses into a single entity, often for strategic, financial, or operational efficiency reasons.

Appraisal Rights

Entitlement of a corporation's minority shareholders to have their shares appraised and to receive compensation at a fair market value in the event of certain corporate actions.