Cambridge Roller Skates Has Three Product Lines-D,E,and F The Company Is Deciding Whether to Drop Product Line F

question 50

Multiple Choice

Cambridge Roller Skates has three product lines-D,E,and F.The following information is available: $\begin{array}{|l|c|c|c|}\hline&\mathrm{D} & \mathrm{E} & \mathrm{F}\\\hline \text { Sales revenue } & \$ 70,000 & \$ 60,000 & \$ 30,000 \\\hline \text { Variable costs } & (40,000) & (15,000) & (10,000) \\\hline \text { Contribution margin } & \$ 30,000 & \$ 45,000 & \$ 20,000 \\\hline \text { Fixed costs } & (15,000) & (5,000) & (23,000) \\\hline \text { Operating income(loss) } & \$ 15,000 & \$40,000 & \$(3,000) \\\hline\end{array}$
The company is deciding whether to drop product line F because it has an operating loss.Assume that $21,000 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 $23,000.
• B) Operating income will increase by $1,000.
• C) Operating income will decrease by $23,000.
• D) Operating income will decrease by $1,000.

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Definitions:

Minimum Shipment Quantities

The smallest amount of product that a supplier is willing to ship, usually determined by transport efficiency or the supplier's policy.

Transport

The movement of goods or people from one location to another, typically involving vehicles such as trucks, planes, or ships.

Transportation Network Design

The planning and optimization of routes and modes of transport to move goods efficiently from origin to destination.

Intermediate Transit Point

A location, such as a warehouse or distribution center, where goods stop temporarily during their journey from the manufacturer to the end customer.