Bally Company Has Three Product Lines: A,B and C Assume Bally Company Drops Product C

question 133

Multiple Choice

Bally Company has three product lines: A,B and C.The following annual information is available:
$\begin{array}{llll}&\text { Product A }&\text { Product B }&\text { Product C }\\\text { Sales } & \$ 60,000 & \$ 90,000 & \$ 24,000 \\\text { Variable costs } & \underline{36,000} & \underline{48,000} & 20,000\\\text { Contribution margin } & 24,000 & 42,000 & 4,000 \\\text { Avoidable fixed costs } & 9,000 & 18,000 & 3,000 \\\text { Unavoidable fixed costs } & 6,000 & 9,000 & 2,400\\\text { Operating income(loss) }&\$9,000&\$15,000&\$(1,400) \end{array}$
Assume Bally Company drops Product C.What will happen to operating income?

• A) increase by $1,400
• B) increase by $3,800
• C) decrease by $1,000
• D) decrease $1,400

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Definitions:

Overhead Variances

Differences between the estimated and actual overhead costs in manufacturing or business operations.

Fixed Manufacturing Overhead

The portion of manufacturing overhead costs that remains constant regardless of the level of production, such as depreciation of equipment and salary of supervisors.

Budget Variance

The difference between budgeted and actual figures for a given period, indicating under or overspending.

Machine-Hours

A measure of production time, calculating the total hours a machine is operated in the production of goods.