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:

Creative Destruction

A concept in economics attributed to Joseph Schumpeter, describing the process by which old industries or technologies are destroyed and replaced by new ones.

Dominant Firms

Companies that have a major share of the market sales, influence, or both, enabling them to set prices within the industry.

Planned Economies

Economic systems where government agencies centrally plan and direct all major economic activities, assigning resources and determining outputs with the aim of achieving specific goals.

U.S. Firms

Companies or businesses that are registered, operate, or have their headquarters in the United States.