T 1 12 20 Consider the following statement 1. A division\'s net 2. T 3. The divi
ID: 2597791 • Letter: T
Question
T 1 12 20 Consider the following statement 1. A division's net 2. T 3. The division's traccable fixed costs plus its allocated common corporalc cost operating income, after deducting both traceable and allocited common fived cests, is negative he division's avoidable fised costs exceed its contribution margin evceed its contribution margin Which of the above statements is a valid reason for climinating the division? A. Only 1. and 2 B. Only 2. and 3. C. OnlyI D. Only 2 E. Only 3. 21 Krugman Company manufactures and sells one product. The following infommution pertains to cach of the compary's first two years of operations Variable cost per unit Direct materials 589 per unit Fixed costs per year Direct labor Fixed manufacturing overhead Fixed selling and administrative S1,344,000 S3.472,000 S1,782,000 y does not incur any variable manufacturing overhead costs or varabke selling and administrativ expenses. The selling price of the company's product is $227 per unit Year l Production (units) Sale (units) Year 2 56,000 56,000 53,000 9.000 The company is considering using cither super-variable costing or a variable cesting systom that assigms direct labor cost equally to each unit that is produced. Which of the follow ing statements is truc regarding the nct operating income (NOI) in the first year? A. Variable costing NOI excceds super-variable costing NOI by$72.000 B. Super-variable costing NOI exceeds variable costing NOl by $72.000 C. Variable costing NOl exceeds super-variable costing NOI by $258,000 D. Super-variable costing NOl exceeds variable costing NOI by S258,000 E. None of the aboveExplanation / Answer
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Option "D Only 2" is correct Because avoidable fixed cost are those which can be avoided after closure of the division but allocated expenses can't. So if contirbution is less than the aviodable fixed cost thanit is a vaild reason to eliminate the divisionRelated Questions
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