a. Ctistomer retention b. R&D; costs c. Residual income d. Employee turnover rat
ID: 2596550 • Letter: A
Question
a. Ctistomer retention b. R&D; costs c. Residual income d. Employee turnover rate 26. Select the correct statement regarding relevant revenues. a. b. c. d. Relevant revenues must not differ between the alternatives being considered. Past revenues may be relevant. Relevant revenues must make a difference in the decision under consideration. Revenues that are relevant in one decision context are always relevant in other decision contexts. 27. Select the correct statement regarding opportunity costs Opportunity costs need not be considered in decision making b. a. Opportunity costs represent sunk costs. g purposes. d. Opportunity costs represent unavoidable costs. 28. A study has been conducted to determine if Product A should be dropped. Sales of the product total $200,000 per year; variable expenses total $140,000 per year. Fixed expenses charged to the product total $90,000 per year. The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped. These data indicate that if Product A is dropped, the company's overall net operating income would: a. decrease by $20,000 per year b. increase by $20,000 per year c. decrease by $10,000 per year d. increase by $30,000 per yearExplanation / Answer
26) c. Relavant revenues must make a difference in the decisions under consideration. Since it helps in selecting the alternative best suited.
27) c. Opportunity costs are relavant for decision making purpose since it helps in comparing two different alternatives by including the opportunity cost/contribution lost by not doing the next best alternative.
28) c. decrease by $10,000 per year
Contribution = Sales Revenue - Variable Costs = ($200,000-$140,000) = $60,000
If the product is discontinued, there shall be a loss in contribution of $60,000
There shall be a savings in avoidable fixed costs by $50,000 (90,000-40,000)
Thus net decrease in profit shall be $60,000 - $50,000 = $10,000
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