23. Fabio Corporation is considering eliminating a department that has a contrib

Question

23. Fabio Corporation is considering eliminating a department that has a contribution margin of $29,000 and $71,000 in fixed costs. Of the fixed costs, $13,500 cannot be avoided. The effect of eliminating this department on Fabio's overall net operating income would be:

a decrease of $42,000.

an increase of $42,000.

a decrease of $28,500.

an increase of $28,500.

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 $229,000 of the fixed manufacturing expenses and $190,000 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 $82,000.

Overall net operating income would increase by $82,000.

Overall net operating income would increase by $115,000.

Overall net operating income would decrease by $115,000.

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

5.8 years

7.8 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.

23. Fabio Corporation is considering eliminating a department that has a contribution margin of $29,000 and $71,000 in fixed costs. Of the fixed costs, $13,500 cannot be avoided. The effect of eliminating this department on Fabio's overall net operating income would be:

Explanation / Answer

23. Contribution lost = $29000

Avoidable fixed cost = $71000 - $13500 = $57500

Effect on net operating income = $57500 - $29000 = $28500

Increase by $28500

Last option is correct

24. Contribution lost = $920000 - $386000 = $534000

Avoidable fixed cost = $229000 + $190000 = $419000

Decrease in operating income = $534000 - $419000

= $115000

Last option is correct

25. Payback period = Initial investment / Annual cash flows

= $580000 / $74000

= 7.8 years

26. Bonds are issued to raise funds. It is a financing activity.

Second option is correct.

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