DM Corporation Has Provided You with the Following Budgeted Income

question 143

Multiple Choice

DM Corporation has provided you with the following budgeted income statement for one of its products:

DM has just encountered environmental problems with the product and will be forced to drop the product line altogether.DM will be able to eliminate 60% of the fixed costs.What will be the impact on operating income of the company?

• A)Operating income will decrease by $186,000.
• B)Operating income will decrease by $84,000.
• C)Operating income will increase by $186,000.
• D)Operating income will increase by $84,000.

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Definitions:

Net 30 Credit Policy

A specific credit term where customers are given 30 days to pay the invoice in full, widely used in business transactions to manage cash flow.

Monthly Interest Rate

The interest rate expressed as a monthly percentage, determining the amount of interest charged or earned per month.

Credit Policy

A set of guidelines that a company follows to determine credit limits and terms for customers, aiming to manage risk and promote sales.

Operating Cycle

The operating cycle is the amount of time it takes for a company to purchase inventory, sell it to customers, and collect cash from the sales.