Product Q77H Has Been Considered a Drag on Profits at Zenke

question 18

Multiple Choice

Product Q77H has been considered a drag on profits at Zenke Corporation for some time and management is considering discontinuing the product altogether.Data from the company's accounting system appear below: In the company's accounting system all fixed expenses of the company are fully allocated to products.Further investigation has revealed that $71, 000 of the fixed manufacturing expenses and $43, 000 of the fixed selling and administrative expenses are avoidable if product Q77H is discontinued.What would be the effect on the company's overall net operating income if product Q77H were dropped?

• A)Overall net operating income would decrease by $95, 000.
• B)Overall net operating income would increase by $95, 000.
• C)Overall net operating income would increase by $4, 000.
• D)Overall net operating income would decrease by $4, 000.

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Definitions:

Transfer Warranties

Legal assurances provided by a seller to a buyer regarding the condition and legal status of property or goods being sold.

Presentment Warranties

Guarantees made by the presenter of an instrument (e.g., a check) regarding their authority and the validity of the instrument in a financial transaction.

Acceptor

A person (drawee) who accepts and signs a draft to agree to pay the draft when it is presented.

Draft

An instrument validating an order by a drawer to a drawee to pay a payee.