The Management of Fries Corporation Has Been Concerned for Some

question 129

Multiple Choice

The management of Fries Corporation has been concerned for some time with the financial performance of its product R89H and has considered discontinuing it on several occasions. 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 $31,000 of the fixed manufacturing expenses and $46,000 of the fixed selling and administrative expenses are avoidable if product R89H is discontinued.
-What would be the effect on the company's overall net operating income if product R89H were dropped?

• A)Overall net operating income would decrease by $66,000.
• B)Overall net operating income would decrease by $8,000.
• C)Overall net operating income would increase by $66,000.
• D)Overall net operating income would increase by $8,000.

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Definitions:

Dissolution

The closure or termination of an entity’s existence, such as a corporation or partnership, through legal processes.

Winding Up

The process of dissolving a company, involving the cessation of business operations, selling of assets, and distribution of proceeds to creditors and shareholders.

Negative Capital

occurs when a company's total liabilities exceed its total assets, indicating financial distress.

Balance

The amount of money currently in an account or owing on a debt, or the practice of equating debits and credits in bookkeeping.