Consider the Following Statements: I

question 152

Multiple Choice

Consider the following statements: I. A division's net operating income, after deducting both traceable and allocated common fixed costs, is negative.
II) The division's avoidable fixed costs exceed its contribution margin.
III) The division's traceable fixed costs plus its allocated common corporate costs exceed its contribution margin.
Which of the above statements is a valid reason for eliminating the division?

• A)Only I
• B)Only II
• C)Only III
• D)Only I and II

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Definitions:

Overapplied Manufacturing Overhead

Refers to a situation where the estimated manufacturing overhead cost is more than the actual manufacturing overhead incurred during a period.

Debit

An accounting entry that increases an asset or expense or decreases a liability, equity, or revenue.

Credit

A financial term defining the ability to obtain goods or services before payment, based on the trust that payment will be made in the future.

Underapplied Overhead

A situation where the applied manufacturing overhead is less than the actual manufacturing overhead costs incurred.