Zandy Beverage Company Plans to Eliminate a Branch That Has

question 17

Multiple Choice

Zandy Beverage Company plans to eliminate a branch that has a contribution margin of £50,000 and fixed costs of £75,000. Of the fixed costs, £55,000 cannot be eliminated. The effect of eliminating this branch on net income would be a(n)

• A)decrease of £25,000.
• B)increase of £25,000.
• C)decrease of £30,000.
• D)increase of £30,000.

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Definitions:

High Inflation

A period during which prices for goods and services rise excessively, eroding purchasing power.

Purchasing Power

The ability of an individual or group to buy goods and services, often considered in terms of the amount of goods and services that one unit of currency can buy.

Real Interest Rate

Adjusted interest rate for inflation, reflecting the true cost of borrowing or the real yield on savings.

Nominal Interest Rate

The interest rate before adjustments for inflation, representing the raw interest percentage that lenders charge borrowers for the use of money.