Question

Tremaine Inc. has three product lines: A, B, and C. A B C Total Sales $50,000...

Tremaine Inc. has three product lines: A, B, and C.

A

B

C

Total

Sales

$50,000

$85,000

$90,000

$225,000

Variable costs

  30,000

  30,000

  44,000

  104,000

Contribution margin

20,000

55,000

46,000

121,000

Fixed costs

  23,000

  25,000

  18,000

    66,000

Net income

$ (3,000)

$30,000

$28,000

$  55,000

28.  Management is considering dropping product line A. If it is discontinued, $18,000 of its fixed costs are DTFC & can be avoided. The discontinuation of product line A would:

a.

increase Tremaine net income by $13,000.

b.

increase Tremaine net income by $21,000.

c.

decrease Tremaine net income by $2,000.

d.

increase Tremaine net income by $2,500.

29.  Management is considering dropping product line A. If it is discontinued, (1) all of its fixed costs are common FC & cannot be avoided and (2) sales of Product B will increase by 60%. The discontinuation of product line A would:

a.

increase Tremaine net income by $13,000.

b.

increase Tremaine net income by $21,000.

c.

decrease Tremaine net income by $2,000.

d.

increase Tremaine net income by $2,500.

30.  Management is considering dropping product line A. If it is discontinued, (1) all of its fixed costs are common FC & cannot be avoided and (2) the selling price of Product C will increase by 25%. The discontinuation of product line A would:

a.

increase Tremaine net income by $13,000.

b.

increase Tremaine net income by $21,000.

c.

decrease Tremaine net income by $2,000.

d.

increase Tremaine net income by $2,500.
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Answer #1

28. Discontinuation of product line A would increase(decrease) net income by = Fixed cost avoided - contribution margin lost

=18000-20000 = $2000

Option c. is correct answer.

29. Discontinuation of product line A would increase(decrease) net income by = Increase in contribution margin of Product B - contribution margin lost on product A

= 55000*60%-20000 = $13000

Option a. is correct answer.

30. Discontinuation of product line A would increase(decrease) net income by = Increase in contribution margin of Product C - contribution margin lost on product A

= 90000*25%-20000 = $2500

Option d. is correct answer.

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