Pepper’s Automotive (see Brief Exercise 18-19) has further analyzed the exhaust systemdivision into three products: exhaust pipes, intake valves, and intake pipes. The incomestatement is available below.If intake valves were dropped, what would be the change in profits in the short run and thelong run, respectively?[LO 18-4]Exhaust Pipes Intake Valves Intake PipesNet revenues $500,000 $300,000 $200,000Variable costs 50,000 150,000 100,000Contribution margin 450,000 150,000 100,000Controllable fixed costs 50,000 50,000 0Controllable margin 400,000 100,000 100,000Noncontrollable fixed costs 100,000 150,000 50,000Contribution by profit center $300,000 $ (50,000) $ 50,000a. Short run: $100,000 decrease; long run: $50,000 increaseb. Short run: $150,000 increase; long run: $50,000 decreasec. Short run: $100,000 increase; long run: $50,000 decreased. Short run: $50,000 increase; long run: $100,000 decrease
Pepper’s Automotive (see Brief Exercise 18-19) has further analyzed the exhaust system
division into three products: exhaust pipes, intake valves, and intake pipes. The income
statement is available below.
If intake valves were dropped, what would be the change in profits in the short run and the
long run, respectively?
[LO 18-4]
Exhaust Pipes Intake Valves Intake Pipes
Net revenues $500,000 $300,000 $200,000
Variable costs 50,000 150,000 100,000
Contribution margin 450,000 150,000 100,000
Controllable fixed costs 50,000 50,000 0
Controllable margin 400,000 100,000 100,000
Noncontrollable fixed costs 100,000 150,000 50,000
Contribution by profit center $300,000 $ (50,000) $ 50,000
a. Short run: $100,000 decrease; long run: $50,000 increase
b. Short run: $150,000 increase; long run: $50,000 decrease
c. Short run: $100,000 increase; long run: $50,000 decrease
d. Short run: $50,000 increase; long run: $100,000 decrease
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