Macaulay Company Has Three Product Lines-D, E, and F Macaulay Company Is Thinking of Dropping Product Line F Because

question 39

Multiple Choice

Macaulay Company has three product lines-D, E, and F. The following information is available: $$\begin{array} { | l | r | r | r | } \hline & { \text { D } } & { \text { E } } & { \text { F } } \\\hline \text { Sales } & \$ 70,000 & \$ 40,000 & \$ 30,000 \\\hline \text { Variable costs } & \underline { 40,000 } & \underline { ( 20,000 } & \underline { ( 10,000 } ) \\\hline \text { Contribution margin } & 30,000 & 20,000 & 20,000 \\\hline \text { Fixed expenses } & \underline { ( 15,000 } & \underline { ( 15,000 } ) & \underline { ( 25,000 } ) \\\hline \text { Operating income (loss) } & \$ 15,000 & \$ 5,000 & \underline { ( \$ 5,000 } \\\hline\end{array}$$ Macaulay Company is thinking of dropping product line F because it is reporting an operating loss. Assuming fixed costs are unavoidable, if Macaulay Company drops product line F and does not replace it, what effect will this have on operating income?

• A) Operating income will increase $5,000.
• B) Operating income will increase $20,000.
• C) Operating income will increase $25,000.
• D) Operating income will decrease $20,000.

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Definitions:

Working Capital

The variance between a firm's current assets and its current liabilities, showcasing the company's operational efficiency and short-term financial stability.

Current Liabilities

Obligations or debts that a company is expected to pay off within a year, such as accounts payable or short-term loans.

Adjusted Trial Balance

A list of all accounts and their balances after adjustments are made, used for preparing financial statements.

Net Loss

The amount by which total expenses exceed total revenues in a given period, indicating a negative financial performance.