A Study Has Been Conducted to Determine If One of the Departments

question 5

Multiple Choice

A study has been conducted to determine if one of the departments in Parry Company should be discontinued. The contribution margin in the department is $50,000 per year. Fixed expenses charged to the department are $65,000 per year. It is estimated that $40,000 of these fixed expenses could be eliminated if the department is discontinued. These data indicate that if the department is discontinued, the company's overall net operating income would:

• A) decrease by $25,000 per year
• B) increase by $25,000 per year
• C) decrease by $10,000 per year
• D) increase by $10,000 per year

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Definitions:

Securities

Financial vehicles that embody a part-ownership in a corporation traded on the stock market, a credit relationship with governmental organizations or companies (bonds), or the potential ownership conferred by holding options.

Treasury Bills

Short-term government securities issued at a discount from the face value and maturing at par, offering a return to investors.

Dividend

A portion of a company's earnings distributed to its shareholders, usually in the form of cash or additional stock.

Expected Rate Of Return

The anticipated gain or loss on an investment over a specific period, usually expressed as a percentage.