Consider the Following Portion of a Segmented Income Statement for the Year

question 46

Multiple Choice

Consider the following portion of a segmented income statement for the year just ended.Assume that the fixed expenses of Division X include $30,000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments nor reduce the common expenses. $\begin{array}{lr}&\text { Division } X\\\text { Sales } & \$ 100,000 \\\text { Variable manufacturing costs } & \$ 60,000 \\\text { Gross profit } & \$ 40,000\\\text {Fixed expenses (direct and allocated) }&50,000\\\text {Operating income (loss) }&\$(10,000) \end{array}$ What would be the effect on the firm's operating income if Division X were discontinued?

• A)decrease $10,000
• B)increase $10,000
• C)decrease $40,000
• D)decrease $100,000

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Definitions:

Average Cost

The total cost of production divided by the number of goods produced.

Setup Cost

The initial expense required to create a new product or establish a new process, including costs for equipment, facilities, and labor.

Multiply

The mathematical operation of increasing a number by another specified number of times, essentially repeated addition.

Multiply

To perform a mathematical operation where a number is added to itself a certain number of times, represented by the symbol \(*\).