Accelerate Rollerblades Has Three Product Lines-D, E, and F The Company Is Deciding Whether to Drop Product Line F

question 169

Multiple Choice

Accelerate Rollerblades has three product lines-D, E, and F. The following information is available: $$\begin{array} { | l | l | r | r | } \hline & \text { D } & \text { E } & \text { F } \\\hline \text { Sales revenue } & \$ 70,000 & \$ 40,000 & \$ 31,000 \\\hline \text { Variable costs } & ( 20,000 & ( 5000 ) & \underline { ( 11,000 ) } \\\hline \text { Contribution margin } & \$ 50,000 & \$ 35,000 & \$ 20,000 \\\hline \text { Fixed costs } & \underline { ( 10,000 } & \underline { ( 5000 ) } & \underline { ( 23,000 ) } \\\hline \text { Operating income (loss) } & \$ 40,000 & \$ 30,000 & \$ ( 3000 ) \\\hline\end{array}$$ The company is deciding whether to drop product line F because it has an operating loss. Assume that $15,000 of total fixed costs could be eliminated by dropping F. What effect would this decision have on operating income?

• A) Operating income will increase by $35,000.
• B) Operating income will increase by $20,000.
• C) Operating income will decrease by $5000.
• D) Operating income will decrease by $15,000.

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Definitions:

Confidence Interval

A range of values, derived from a sample, that is likely to contain the population parameter with a specified level of confidence.

Normally Distributed Population

A population with a distribution that has a characteristic bell-shaped curve where most of the data points cluster around the mean.

Standard Deviation

An indicator of the degree of difference or spread within a collection of numbers.

Confidence Interval

A series of numbers, derived from analyzing a sample, assumed to encircle the value of a concealed population parameter.