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atch TV ard mom https//ww myhr, Mirbo" e531) MrSchedde and C Ec akna kip>?UTEPO'laro154BONC alicis ® ? tr-Q.giverorPr Choice CH 21, 23, 24 6 Help Save & Far Soar Incorporated is cansidering eiminatno its mourtein bike division, which reported an operating loss for the recem yee of $5000 The dvision sdies for the yeer were 51045000 and the varilable costs were $862 000 The fwed costs of the dvision were $188,000 if the that divison could be elileinated The impect on ope nting income for elimineting this business segment would be mountein bike divis on is cropped, 30% of the fxed costs alocebed 10 51400 decrease $183,000 increase TH3000 decreane

Explanation / Answer

1)OPerating income if division is continued =1045000-562000-188000=(5000)

If division is continued ,operating income = 188000(1-.30 fixed cost elimiated) )131600

net operating income/(loss)increase by 131600-5000= 126600

so overall company net operating income decrease by 126600

correct option is "B"

2)CORRECT option is "B" -58.35

cost to make : 7.7+23.7+[38.5*.70] = 58.35

**70% of overhead is relevant as 30% of overhead will be incurred whether purchased or make .

3)depreciation : [cost-salvage ]/life

      =[1784000-26000]/3

      =586000

cash flow = net income+depreciation

    = 196000+586000= 782000

present value of cash flow = [.8929*782000]+[.7972*782000]+[.7118*808000]

         =698247.8+ 623410.4+ 575134.4

          = 1896792.6

NPV =present value -initial cost

   1896792.6-1784000

112792.6

correct option is " A"

4)Correct option is "A" 3216

fixed cost will be incurred whether offer is accepted or not thus irrelevant .variable manufacturing cost per unit= 96000/15000=6.4

Total variable cost=6.4+..23=6.63

value from special offer: 4800[7.3-6.63]= 3216 increase.

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