Rings Company has three product lines, A, B, and C. The following financial information is available: Item Product Line A Product Line B Product Line C Sales $ 66,000 $ 135,000 $ 30,000 Variable costs $ 39,600 $ 72,000 $ 18,750 Contribution margin $ 26,400 $ 63,000 $ 11,250 Fixed costs: Avoidable $ 6,100 $ 18,000 $ 8,400 Unavoidable $ 4,800 $ 13,500 $ 3,800 Pre-tax operating income $ 15,500 $ 31,500 $ (950) If Product Line C is discontinued and the manufacturing space formerly devoted to this line is rented for $6,000 per year, pre-tax operating income for the company will likely: Multiple Choice Be unchanged—the two effects cancel each other out. Increase by $1,950. Increase by $3,150. Increase by $5,850. Increase by some other amount.
Rings Company has three product lines, A, B, and C. The following financial information is available: Item Product Line A Product Line B Product Line C Sales $ 66,000 $ 135,000 $ 30,000 Variable costs $ 39,600 $ 72,000 $ 18,750 Contribution margin $ 26,400 $ 63,000 $ 11,250 Fixed costs: Avoidable $ 6,100 $ 18,000 $ 8,400 Unavoidable $ 4,800 $ 13,500 $ 3,800 Pre-tax operating income $ 15,500 $ 31,500 $ (950) If Product Line C is discontinued and the manufacturing space formerly devoted to this line is rented for $6,000 per year, pre-tax operating income for the company will likely: Multiple Choice Be unchanged—the two effects cancel each other out. Increase by $1,950. Increase by $3,150. Increase by $5,850. Increase by some other amount.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Rings Company has three product lines, A, B, and C. The following financial information is available:
| Item | Product Line A | Product Line B | Product Line C |
|---|---|---|---|
| Sales | $ 66,000 | $ 135,000 | $ 30,000 |
| Variable costs | $ 39,600 | $ 72,000 | $ 18,750 |
| Contribution margin | $ 26,400 | $ 63,000 | $ 11,250 |
| Fixed costs: | |||
| Avoidable | $ 6,100 | $ 18,000 | $ 8,400 |
| Unavoidable | $ 4,800 | $ 13,500 | $ 3,800 |
| Pre-tax operating income | $ 15,500 | $ 31,500 | $ (950) |
If Product Line C is discontinued and the manufacturing space formerly devoted to this line is rented for $6,000 per year, pre-tax operating income for the company will likely:
Multiple Choice
-
Be unchanged—the two effects cancel each other out.
-
Increase by $1,950.
-
Increase by $3,150.
-
Increase by $5,850.
-
Increase by some other amount.
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