Product Q77H Has Been Considered a Drag on Profits at Zenke

question 100

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:

Depression

An extended period of significant decline in economic activity across a country or the global economy, marked by high unemployment rates, low consumer spending, and decreased industrial output.

Unemployment Rate

The portion of the workforce currently unemployed but actively searching for work opportunities.

Opportunity Cost

The foregone benefit of the next best alternative when a decision is made to choose one option over another.

Allocative Efficiency

Occurs when no resources are wasted; it is not possible to make any person better off without making someone else worse off.