ABC Company Has Three Products That Use Common Facilities

question 161

Multiple Choice

ABC Company has three products that use common facilities.The relevant data concerning these three products follows:

Fixed costs are allocated common costs.If product line C is dropped,what will be the impact on operating profits?

• A)Operating loss will decrease to ($15,000).
• B)Operating loss will decrease to ($5,000).
• C)Operating loss will increase to ($35,000).
• D)There would be no change in operating profits.

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Definitions:

Unit Variable Costs

The costs that vary directly with the volume of production or sales, such as materials and labor.

Contribution Margin Ratio

The percentage of sales revenue that exceeds variable costs, indicating the portion available to cover fixed costs and generate profit.

Operating Income

Income generated from a company's ongoing, core business operations, excluding deductions of interest and taxes.

Variable Costs

Costs that vary directly with the level of production or business activity.