Abel Company produces three versions of baseball bats: wood, aluminum, and hard rubber. A condensed segmented income statement for a recent period follows: Assume none of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped?
A) $125,000
B) $103,000
C) $105,000
D) $140,000

Question

Abel Company produces three versions of baseball bats: wood, aluminum, and hard rubber. A condensed segmented income statement for a recent period follows:  Assume none of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped?
A) $125,000 
B) $103,000 
C) $105,000 
D) $140,000

Quizplus · Accepted Answer

If the hard rubber line is dropped, the total revenue will decrease by $300,000 and the total variable expenses will decrease by $150,000. However, the fixed expenses for the hard rubber line of $47,000 are unavoidable and will continue to be an expense even if the line is dropped. Therefore, the net income will decrease by $103,000 ($300,000 - $150,000 - $47,000 = $103,000). So, the best choice is B.

Abel Company Produces Three Versions of Baseball Bats: Wood, Aluminum