The Flint Fan Corporation Is Considering the Addition of a New

question 84

Multiple Choice

The Flint Fan Corporation is considering the addition of a new model fan, the F-27, to its current products. The expected cost and revenue data for the F-27 fan are as follows:

If the F-27 is added as a new product, it is expected that the contribution margin of other products will drop by $7,000 per year.

-If the F-27 product is added next year, the change in operating income should be:

• A)$30,000 increase
• B)$5,000 decrease
• C)$23,000 increase
• D)$15,000 increase

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Definitions:

Taxable Income

The amount of income that is used to calculate an individual's or a company’s income tax due, after exemptions and deductions.

Operating Income

Earnings before interest and taxes (EBIT), representing a company's profit from regular operations, excluding non-operational income and expenses.

Retained Earnings

Profits that a company has earned to date, less any dividends or other distributions paid to shareholders.

Dividends

Payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders.