Question

USE THE FOLLOWING INFORMATION FOR THE NEXT 2 INDEPENDENT QUESTIONS:

   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.

Answer 1

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