Rabbitt Corporation Is Considering Whether to Discontinue a Division That

question 255

Multiple Choice

Rabbitt Corporation is considering whether to discontinue a division that generates a total contribution margin of $40,000 per year. Fixed manufacturing overhead allocated to this division is $60,000, of which 12,000 is unavoidable. If Rabbitt Corporation were to eliminate this division, the effect on the company's operating income would be a(n)

• A) increase in total operating income of $8,000.
• B) decrease in total operating income of $8,000.
• C) increase in total operating income of $28,000.
• D) decrease in total operating income of $28,000.

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Definitions:

Horizontal Shift

A movement of a graph in the left or right direction along the horizontal axis.

Vertical Shift

A transformation that moves a graph up or down the y-axis, changing the equation's output but not its input.

Vertical Line Test

A method to determine if a graph represents a function by checking if any vertical line intersects the graph at more than one point.