Black Productions Has Three Models: D,E,and F

question 154

Multiple Choice

Black Productions has three models: D,E,and F.The following information is available:

Black Productions is thinking of discontinuing model F because it is reporting an operating loss.All fixed costs are unavoidable.Assuming Black Productions discontinues line F and is able to double the production and sales of model E without increasing fixed costs.What effect will this have on operating income?

• A)Increase $10,000
• B)Decrease $10,000
• C)Increase $26,000
• D)Decrease $26,000

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Definitions:

Holding Cost

The expenses associated with storing unsold goods or materials, including warehousing, insurance, and spoilage costs.

Setup Cost

The expenses incurred to prepare equipment or a production facility for manufacturing a new product batch or a different item.

Batch Size

The quantity of items produced or processed at one time, which can affect production efficiency and flexibility.

Subassemblies

Components or assemblies that are put together to form a part of a larger final product, often manufactured separately before being integrated into the main assembly.