Boots Plus Has Two Product Lines: Hiking Boots and Fashion

question 85

Multiple Choice

Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow: Assuming the Fashion line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $28,000 per year, how will operating income be affected?

• A)Decrease $8000
• B)Increase $64,000
• C)Increase $8000
• D)Increase $120,000

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Definitions:

Rational Expectations

The hypothesis in economics that assumes individuals form forecasts of future events based on all available information in an unbiased and rational manner.

Potential Output

The highest level of output an economy can produce without leading to inflation, when operating at full employment.

Monetary Policy

Actions undertaken by a central bank to control the money supply and interest rates to achieve macroeconomic objectives like controlling inflation, consumption, growth, and liquidity.

Wage Increases

Adjustments to employee salaries that lead to a higher rate of pay, often in response to factors like inflation, performance, and market demands.