Diamond 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 $ 52,000 $ 100,000 $ 23,000 Variable costs $ 31,200 $ 53,000 $ 14,375 Contribution margin $ 20,800 $ 47,000 $ 8,625 Fixed costs: Avoidable $ 5,400 $ 14,500 $ 6,300 Unavoidable $ 4,100 $ 10,000 $ 3,100 Pre-tax operating income $ 11,300 $ 22,500 $ (-775 ) Diamond is thinking of dropping Product Line C because it is reporting an operating loss. Assuming the company drops Product Line C and does not replace it, pre-tax operating income for the firm will likely: Multiple Choice Be unchanged Increase by $2,025 Increase by $2,325 Decrease by $2,325 Decrease by $4,350
Diamond 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 $ 52,000 $ 100,000 $ 23,000 Variable costs $ 31,200 $ 53,000 $ 14,375 Contribution margin $ 20,800 $ 47,000 $ 8,625 Fixed costs: Avoidable $ 5,400 $ 14,500 $ 6,300 Unavoidable $ 4,100 $ 10,000 $ 3,100 Pre-tax operating income $ 11,300 $ 22,500 $ (-775 ) Diamond is thinking of dropping Product Line C because it is reporting an operating loss. Assuming the company drops Product Line C and does not replace it, pre-tax operating income for the firm will likely: Multiple Choice Be unchanged Increase by $2,025 Increase by $2,325 Decrease by $2,325 Decrease by $4,350
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Diamond 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 | $ | 52,000 | $ | 100,000 | $ | 23,000 | |||||
| Variable costs | $ | 31,200 | $ | 53,000 | $ | 14,375 | |||||
| Contribution margin | $ | 20,800 | $ | 47,000 | $ | 8,625 | |||||
| Fixed costs: | |||||||||||
| Avoidable | $ | 5,400 | $ | 14,500 | $ | 6,300 | |||||
| Unavoidable | $ | 4,100 | $ | 10,000 | $ | 3,100 | |||||
| Pre-tax operating income | $ | 11,300 | $ | 22,500 | $ | (-775 | ) | ||||
Diamond is thinking of dropping Product Line C because it is reporting an operating loss. Assuming the company drops Product Line C and does not replace it, pre-tax operating income for the firm will likely:
Multiple Choice
-
Be unchanged
-
Increase by $2,025
-
Increase by $2,325
-
Decrease by $2,325
-
Decrease by $4,350
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