54.What will most likely occur if a company eliminates an unprofitable segment when a portion of fixed costs are unavoidable? a.All expenses of the eliminated segment will be eliminated. b. Net income will decrease. c. Net income will increase. d.The company’s variable costs will increase.
55.A company has three product lines, one of which reflects the following results: Sales$215,000 Variable expenses125,000 Contribution margin90,000 Fixed expenses130,000 Net loss$ (40,000) If this product line is eliminated, 60% of the fixed expenses can be eliminated and the other 40% will be allocated to other product lines. If management decides to eliminate this product line, the company’s net income will
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56.A company is considering eliminating a product line. The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance. If the product line is discontinued,
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57.A segment has the following data: Sales$700,000 Variable expenses300,000 Fixed expenses550,000 What will be the incremental effect on net income if this segment is eliminated, assuming the fixed expenses will be allocated to profitable segments?
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Managerial Accounting–Tools for Business Decision Making (e7) WEYGANDT–KIMMEL–KIESO11
Part 2: Problem Solving Questions Question 1. Carney Company manufactures cappuccino makers. For the first eight months of 2013, the company reported the following operating results while operating at 80% of plant capacity: Sales (500,000 units)$90,000,000 Cost of goods sold54,000,000 Gross profit36,000,000 Operating expenses24,000,000 Net income$12,000,000 An analysis of costs and expenses reveals that variable cost of goods sold is $95 per unit and variable operating expenses are $35 per unit. In September, Carney Company receives a special order for 40,000 machines at $135 each from a major coffee shop franchise. Acceptance of the order would result in $10,000 of shipping costs but no increase in fixed expenses. Instructions (a)Prepare an incremental analysis for the special order. (b)Should Carney Company accept the special order? Explain the reason for your answer. (c)What are the two assumptions that make this incremental analysis valid? (d)What nonfinancial factors should management consider in making its decision? Solution
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Managerial Accounting–Tools for Business Decision Making (e7) WEYGANDT–KIMMEL–KIESO12
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