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

question 116

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 rents the space formerly used to produce product F for $17,000 per year, total income will be:

• A) $10,000.
• B) $12,000.
• C) $20,000.
• D) $25,000.

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Definitions:

Research

The systematic investigation into and study of materials and sources to establish facts and reach new conclusions.

IFRS

A collection of accounting norms formulated by the International Accounting Standards Board (IASB), known as International Financial Reporting Standards, which are increasingly being adopted worldwide for the creation of financial statements for public companies.

Development Expenditures

Costs incurred in the research and development of new products or services, which are often capitalized and amortized over time.

Expected Benefit Approach

A method used in accounting for pensions that allocates the cost of pensions over the years during which employees earn their pension benefits.