BUA 202 EXAM #2 Chapter 12 – Flashcards

Weston Corporation is considering eliminating a department that has a contribution margin of $70,000 and $140,000 in fixed costs. Of the fixed costs, $100,000 cannot be avoided. The effect of eliminating this department on Weston's overall net operating income would be: A. an increase of $70,000. B. a decrease of $70,000. C. an increase of $30,000. D. a decrease of $30,000.

The Milham Corporation has two divisions—East and West. The divisions have the following revenues and expenses: Management at Milham is considering the elimination of the West Division. If the West Division were eliminated, its traceable fixed costs could be avoided. Total common corporate costs would be unaffected by this decision. Given these data, the elimination of the West Division would result in an overall company net operating income of: A. $100,000 B. $80,000 C. $120,000 D. $50,000

A study has been conducted to determine if one of the departments in Barry Corporation should be discontinued. The contribution margin in the department is $60,000 per year. Fixed expenses charged to the department are $75,000 per year. It is estimated that $34,000 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 $26,000 per year B. increase by $26,000 per year C. decrease by $15,000 per year D. increase by $15,000 per year

Claris Corporation (a multi-product company) produces and sells 7,000 units of Product X each year. Each unit of Product X sells for $12 and has a contribution margin of $4. If Product X is discontinued, $19,000 of the $32,000 in fixed costs charged to Product X could be eliminated. If Product X is discontinued, the company's overall operating income would: A. decrease by $4,000 per year. B. increase by $4,000 per year. C. decrease by $9,000 per year. D. increase by $9,000 per year.

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.

The management of Fannin Corporation is considering dropping product H58S. 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 $90,000 of the fixed manufacturing expenses and $42,000 of the fixed selling and administrative expenses are avoidable if product H58S is discontinued. What would be the effect on the company's overall net operating income if product H58S were dropped? A. Overall net operating income would decrease by $137,000. B. Overall net operating income would increase by $137,000. C. Overall net operating income would decrease by $151,000. D. Overall net operating income would increase by $151,000.