Mission Company Has Three Product Lines: D, E, and F

question 69

Multiple Choice

Mission Company has three product lines: D, E, and F. The following information is available: Mission Company is thinking of discontinuing product line F because it is reporting an operating loss. All fixed costs are unavoidable. Assume Mission Company is able to increase the sales revenue of product F to $32,000 with no change in volume of units sold and no change in variable costs or fixed costs. What affect will this have on operating income?

• A)Increase $40,000
• B)Increase $12,000
• C)Decrease $12,000
• D)Decrease $20,000

Grasp the concept of discretion given to managers of profit centers.

Comprehend the impact of outsourced services on company operations and profits.

Identify the considerations involved in setting transfer prices.

Understand how transfer prices affect the buying and selling decisions within a company.

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Definitions:

Utility Function

A formulation used in economics to depict how different combinations of goods or services yield varying levels of happiness or utility to an individual.

Risk Neutral

A description of an individual or entity that does not show a preference for risk, valuing all investments purely by their expected return without concern for their risk.

Risk Averse

A description of an individual or entity that prefers outcomes with lower uncertainty and is less likely to engage in actions with uncertain outcomes.

Income

The money or earnings received by an individual or organization, often from employment, business, investments, or other sources.