Macaulay Company Has Three Product Lines-D, E, and F

question 122

Multiple Choice

Macaulay Company has three product lines-D, E, and F. The following information is available: Macaulay Company is thinking of dropping product line F because it is reporting an operating loss. Assume that $25,000 of total fixed costs could be eliminated by dropping F. What effect would this decision have on operating income?

• A)Operating income will increase by $25,000.
• B)Operating income will increase by $5,000.
• C)Operating income will decrease by $25,000.
• D)Operating income will decrease by $5,000.

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Definitions:

FIFO

An inventory valuation method that assumes the first items acquired are the first ones sold, standing for First-In, First-Out.

Last-in, First-out

An inventory valuation method where the most recently produced or purchased items are the first to be expensed, often used to manage costs and taxes.

Last-in, First-out Method

An inventory valuation method where the goods purchased last are considered sold first for cost of goods sold calculation.

Perpetual Inventory System

A method of accounting for inventory that records the sale or purchase of inventory immediately through computer systems, without the need for a physical count.