The Internal Financial Statements of Vera Incorporated Show That Their

question 10

Multiple Choice

The internal financial statements of Vera Incorporated show that their beaded purses incurred an operating loss in the most recent year. There were 25,000 purses sold in that year. Selected financial information about the purse line follows. If the line of purses were to be discontinued, the company would avoid $18,000 in fixed costs per year.
If Vera Incorporated were to discontinue the line of purses, the change in annual operating income would be a(n)

• A)increase in total operating income of $81,000.
• B)decrease in total operating income of $2000.
• C)increase in total operating income of $2000.
• D)decrease in total operating income of $81,000.

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Definitions:

Activity-Based Product Costing

A costing method that assigns costs to products based on the activities they require, focusing on the relationship between costs, activities, and products.

Product Line

A group of related products marketed by the same company under a single brand.

Cheap

An adjective describing products or services that are low in price, often implying lower quality or less prestige.

Differential Level Activity

Refers to changes in operating activities that result in differences in costs or revenues under different scenarios or volumes.