Use the Information Below to Answer the Following Question(s)

question 94

Multiple Choice

Use the information below to answer the following question(s) :
Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow:

-If $25,000 of fixed costs will be eliminated by discontinuing the Fashion line, how will operating income be affected?

• A) Increase $5,000
• B) Decrease $45,000
• C) Increase $54,000
• D) Increase $103,000

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Definitions:

Futures Contract

A legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specified time in the future.

Margin

The difference between the selling price of a product and the cost of producing or purchasing it, or the collateral required to secure a loan or derivative position.

Zero Coupon Interest Rate

A rate of interest reflecting the discount from par at which zero-coupon bonds are sold. This rate is not paid annually but at maturity.

Arbitrage Profit

Profit earned from buying and selling the same asset in different markets to take advantage of differing prices for the same asset.