DM Corporation Has Provided You with the Following Budgeted Income

question 147

Multiple Choice

DM Corporation has provided you with the following budgeted income statement for one of their products: $\begin{array}{|l|r|}\hline\text { Sales } & \$ 700,000 \\\hline \text { Variable expenses } & (430,000) \\\hline \text { Contribution margin } & \$ 270,000 \\\hline \text { Fixed expenses } & (300,000) \\\hline \text { Operating loss } & (\$ 30,000) \\\hline\end{array}$ DM has just encountered environmental problems with the product and will be forced to drop the product line altogether. They will be able to eliminate 75% of the fixed expenses. What will be the impact on operating income of the company?

• A) Operating income will decrease by $195,000.
• B) Operating income will decrease by $45,000.
• C) Operating income will increase by $240,000.
• D) Operating income will increase by $55,000.

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Definitions:

Physical Arousal

A physiological response of the body that prepares it for action, characterized by increased heart rate, breathing, and blood pressure, often triggered by stress, excitement, or exercise.

Spillover Effect

The phenomenon in which feelings, attitudes, or behaviors in one area of one's life transfer to, or influence, another.

Epinephrine

A hormone and neurotransmitter also known as adrenaline, involved in regulating heart rate, blood vessel and air passage diameters, and metabolic shifts.

Physiological Arousal

Refers to the body's response to stimuli, resulting in increased physical activity and alertness, including faster heartbeat and breathing.