23. Fabio Corporation is considering eliminating a department that has a contrib
ID: 2478425 • Letter: 2
Question
23.
Fabio Corporation is considering eliminating a department that has a contribution margin of $32,000 and $64,000 in fixed costs. Of the fixed costs, $16,000 cannot be avoided. The effect of eliminating this department on Fabio's overall net operating income would be:
a decrease of $32,000.
an increase of $32,000.
a decrease of $16,000.
an increase of $16,000.
24.
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 $223,000 of the fixed manufacturing expenses and $184,000 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?
Overall net operating income would decrease by $13,000.
Overall net operating income would increase by $13,000.
Overall net operating income would increase by $190,000.
Overall net operating income would decrease by $190,000.
25.
Chee Corporation has gathered the following data on a proposed investment project: (Ignore income taxes in this problem.)
0.1 years
1.0 years
7.2 years
9.2 years
26.
In a statement of cash flows, issuing bonds payable affects the:
operating activities section.
financing activities section.
investing activities section.
free cash flow activities section.
27.
In a statement of cash flows, which of the following would be classified as an investing activity?
The sale of the company's own common stock for cash.
The sale of equipment.
Interest paid to a lender.
The issuance of bonds payable.
Fabio Corporation is considering eliminating a department that has a contribution margin of $32,000 and $64,000 in fixed costs. Of the fixed costs, $16,000 cannot be avoided. The effect of eliminating this department on Fabio's overall net operating income would be:
Explanation / Answer
23. Computation of existing profit / loss
Contribution –fixed cost
=$32,000 - $64,000
=$ 32,000(loss)
By eliminating department
Loss =$16,000 (that is un avoidable fixed cost)
Hence net operating income will increase by $16,000
Hence option 4
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24. Computation of existing profit / loss
Sale $980,000
(-) Variable expenses $383,000
Fixed manufacturing expenses $365,000
Fixed selling and administrative expenses $245,000
Net operating income $ - 13,000
By discontinued H58S
Un avoidable expenses
Fixed manufacture cost ($365,000 - $223,000) $142,000
fixed selling and administrative expenses($245,000-$184,000) $61,000
$-203,000
Hence net operating income will decrease by $190,000
25.Pay back period = Investment required in equipment / net cash inflows
= $700,000/ $76,000
= 9.2 years
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26.financing activities section.
In a statement of cash flows, issuing bonds payable affects the financing activities section
27. The sale of equipment.
The sale of equipment following would be classified as an investing activity.
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