10 The management of Kabanuck Corporation is considering dro

10. The management of Kabanuck Corporation is considering dropping product V41B. Data from the company\'s accounting system appear below: $890,000 $374,000 $329,000 $258,000 Sales Variable expenses Fixed manufacturing expenses Fixed selling and administrative expenses All fixed expenses of the company are fully allocated to products in the company\'s accounting system. Furth investigation has revealed that $184,000 of the fixed manufacturing expenses and $200,000 of the fixed selling and administrative expenses are avoidable if product V41B is discontinued er What would be the effect on the company\'s overall net operating income if product V41B were dropped? A. Overall net operating income would increase by $71,000. B. Overall net operating income would increase by S132,000. C. Overall net operating income would decrease by $132,000. D. Overall net operating income would decrease by $71,000. 11. Beaver Corporation is investigating the purchase of a new threading machine that costs $18,000. The machine would save about $4,000 per year over the present method of threading component parts, and would have a salvage value of about $3,000 in 6 years when the machine would be replaced. The company\'s required rate of return is l 2%. The machine\'s net present value is closest to: A. $1,556 B. ($35) C. $11,000 D. $8,000 12. Ifoperating income is $60,000, average operating asset are $240,000, and the minimum required rate of return is 20%, what is the residual income? A. 40% B, 25% C. $12,000 D. $48,000 13. The following information relates to next year\'s projected operating results of the Consumer Division of Xampa Corporation: Contribution margin Fixed expenses $1,800,000 Net operating loss If the Consumer Division is eliminated, $1,600,000 of the above fixed expenses could be avoided. What will be the effect on Xampa\'s profit next year if Consumer Division is eliminated? A. $300,000 decrease B. $300,000 increase C. $200,000 decrease D. $200,000 increase

Solution

10) contribution lost (890,000-374,000)= -516000 Saving in fixed cost Fixed manufacturing expense 184,000 Fixed selling and administrative expense 200,000 Decrease in net income -132000 hence option c is the correct answer overall net operating income would decrease by $132,000 11) year amount Discount PV factor at 12% 0 cost of machine -18,000 1 -18,000 1----6 saving in cost 4,000 4.111 16444 6 Salvage value 3,000 0.507 1521 net present value -35 answer option b - 35 12) Residual income = net operating income-(average operating assets*min rate of return) 60,000 - (240,000*20%) 12000 Answere option c ) $12,000 13) contribution margin lost -1,800,000 Saving in fixed cost 1,600,000 Decrease in net income -200,000 option c) 200,000 decrease