Contribution Margin Income Statement Data for the Most Recent Year

question 49

Multiple Choice

Contribution margin income statement data for the most recent year follow: $$\begin{array} { | l | r | r | r | } \hline & \text { Total } & \text { Adult jackets } & \text { Children's jackets } \\\hline \text { Sales revenue } & \$ 365,000 & \$ 275,000 & \$ 90,000 \\\hline \text { Variable expenses } & \$ 205,000 & \$ 165,000 & \$ 40,000 \\\hline \text { Contribution margan } & \$ 160,000 & \$ 110,000 & \$ 50,000 \\\hline \text { Fixed expenses } & \$ 102,000 & \$ 50,000 & \$ 52,000 \\\hline \text { Operating incame (loss) } & \$ 58,000 & \$ 60,000 & \$ ( 2,000 ) \\\hline\end{array}$$
-Assuming the children's jackets line is dropped,total fixed costs remain unchanged,and the space formerly used to produce the line is rented for $22,000 per year,how will operating income be affected?

• A)Decrease $28,000
• B)Increase $176,000
• C)Increase $28,000
• D)Increase $30,000

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Definitions:

Depreciation Tax Shield

The reduction in taxable income that results from the allowance for depreciation expenses, lowering tax liability.

CCA Rate

Capital Cost Allowance rate, used for tax purposes to determine the yearly depreciation of tangible property.

Maintenance

The process of preserving or keeping equipment, systems, or facilities in effective operating condition through routine checks and repairs.

Range Cylinder

Refers to a component in hydraulic or pneumatic systems that determines the range of movement or force exerted by the system, often by specifying the maximum extendable length of the cylinder.