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

question 42

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:

Machine-Hours

A measurement of the amount of time machines are in operation, used to allocate machine-related costs to products.

Fixed Manufacturing Overhead Cost

Expenses related to manufacturing that do not change with the level of production, such as rent, salaries, and depreciation on equipment.

Variable Manufacturing Overhead

These are costs that vary with production volume, such as utilities for the manufacturing plant, but cannot be directly traced to specific units of product.

Direct Labor-Hours

Direct labor-hours are the total hours worked by employees directly involved in the production of goods or services, used for costing and operational efficiency assessment.