The Management of Austin Corporation Is Considering Dropping Product R97C

question 95

Multiple Choice

The management of Austin Corporation is considering dropping product R97C. 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 $34,000 of the fixed manufacturing expenses and $20,000 of the fixed selling and administrative expenses are avoidable if product R97C is discontinued. What would be the effect on the company's overall net operating income if product R97C were dropped?

• A) Overall net operating income would increase by $20,000.
• B) Overall net operating income would increase by $10,000.
• C) Overall net operating income would decrease by $20,000.
• D) Overall net operating income would decrease by $10,000.

Understand the benefits of purchase discounts and their calculation.

Differentiate between the chart of accounts for merchandising and service businesses.

Understand the classification of different types of expenses in accounting.

Distinguish between periodic and perpetual inventory systems.

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Definitions:

Stock Dividend

A form of dividend payment made by a company to its shareholders in the form of additional shares, rather than cash.

Par Value

The nominal or face value of a stock or bond as stated by the issuing company, often used in legal documents.

Market Price

The current price at which an asset or service can be bought or sold in a public market.

Cash Dividend

A payment made by a company out of its profits to its shareholders in cash, typically on a regular basis.