The Management of Freshwater Corporation Is Considering Dropping Product C11B

question 32

Multiple Choice

The management of Freshwater Corporation is considering dropping product C11B. Data from the company's accounting system appear below: All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $211,000 of the fixed manufacturing expenses and $122,000 of the fixed selling and administrative expenses are avoidable if product C11B is discontinued.
-What would be the effect on the company's overall net operating income if product C11B were dropped?

• A)Overall net operating income would decrease by $188,000.
• B)Overall net operating income would increase by $74,000.
• C)Overall net operating income would decrease by $74,000.
• D)Overall net operating income would increase by $188,000.

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Definitions:

Economic Expansion

A phase of the business cycle where the economy grows and increases its output, leading to higher employment and income levels.

Roosevelt Administration

The period of U.S. governance under President Franklin D. Roosevelt, most noted for the New Deal programs implemented to counter the effects of the Great Depression.

Dust Bowl

A period in the 1930s characterized by severe dust storms that damaged the ecology and agriculture of the US and Canadian prairies.

Okies

A term originally used to describe residents of Oklahoma during the Dust Bowl era, it now refers broadly to people who migrated from the central United States during economic hardships.