Pottery Unlimited Has Two Product Lines: Cups and Pitchers -Assuming the Pitcher Line Is Dropped,total Fixed Costs Remain Unchanged,and

question 203

Multiple Choice

Pottery Unlimited has two product lines: cups and pitchers.Income statement data for the most recent year follow: $\begin{array}{|l|r|r|r|}\hline & \text { Total } & \text { Cups } & \text { Pitchers } \\\hline \text { Sales revenue } & \$ 460,000 & \$ 310,000 & \$ 150,000 \\\hline \text { Variable expenses } & \underline{355,000} & \underline{235,000} & \underline{120,000} \\\hline \text { Contribution margin } & 105,000 & 75,000 & 30,000 \\\hline \text { Fixed expenses } & \underline{76,000} & \underline{38,000} & \underline{38,000} \\\hline \text { Operating income (loss) } & \$ 29,000 & \$ 37,000 & \$(8,000) \\\hline\end{array}$

-Assuming the Pitcher line is dropped,total fixed costs remain unchanged,and the space formerly used to produce the Pitcher line is used to double the production of Cups,how will operating income be affected?

• A)Increase $103,000
• B)Increase $45,000
• C)Increase $74,000
• D)Decrease $45,000

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Definitions:

Quantity Demanded

Quantity demanded is the amount of a good that buyers are willing and able to purchase at a particular price over a specified period.

Insurance Policy

A contract between an insurer and a policyholder in which the insurer agrees to pay for specified losses in exchange for a premium.

Probability

A measure of the likelihood that an event will occur, often expressed as a fraction or percentage.

Independent Events

Events for which the occurrence of one does not affect the likelihood of occurrence of any of the others.