Kule,IncProduces Three Different Lines of Car Racks for Transporting Large,bulky

question 149

Multiple Choice

Kule,Inc.produces three different lines of car racks for transporting large,bulky items.
$$\begin{array}{l}\begin{array} { | l | c | c | c |} \hline & \text { Bicycle } & \text { Luggage } & \text { Sks } \\\hline \text { Sales } & \$ 140,000 & \$ 100,000 & \$ 160,000 \\\hline \text { Less: cost of goods sold } & 110,000 & 110,000 & 140,000 \\\hline \text { Net proff } & 30,000 & ( 10,000 ) & 20,000 \\\hline & & & \\\hline & & & \\\hline\end{array}\\\text { Total company net annual profit } = \$ 40,000\end{array}$$ Included in the cost of goods sold is $120,000 of annual rent (a fixed cost) that is distributed equally among the three product lines.
-Refer to Kule,Inc.What will be the effect on total net profit for the company if the line of bicycle racks is dropped?

• A) Total net profit will decrease by $10,000.
• B) Total net profit will increase by $30,000.
• C) Total net profit will increase by $10,000.
• D) Total net profit will decrease by $70,000.

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Definitions:

Discounted

The practice of reducing the selling price of goods or services, often to encourage sales.

Discount Method

A financial strategy where the interest and financing charges are calculated at the time of the sale and deducted from the principal before the loan is disbursed.

Actual Interest Rate

The real rate of interest earned or paid on an investment, loan, or savings, taking into account compounding and fees.

Cash Discounts

Reductions in the price of goods or services, offered to customers as an incentive for early payment.