49-

Striebeak Compny has two product lines-Training suits and football shoes. Income statement data for the most recent year follow:

	Total	Training suits	football shoes
Sales revenue	$850,000	$500,000	$350,000
Variable expenses	(530,000)	(250,000)	(280,000)
Contribution margin	$320,000	$250,000	$70,000
Fixed expenses	(180,000)	(90,000)	(90,000)
Operating income (loss)	$140,000	$160,000	$(20,000)

Assuming the football shoes line is dropped, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $150,000 per year, how will operating income be affected?

Select one:

Operating income will increase $10,000.

Operating income will decrease $80,000.

Operating income will decrease $30,000.

Operating income will increase $30,000.

Operating income will increase $300,000.

Operating income will increase $800,000.

48-

The following details are provided by a manufacturing company.

Investment	$750,000
Useful life	12 years
Estimated annual net cash inflows for first year	$400,000
Estimated annual net cash inflows for second year	$100,000
Estimated annual net cash inflows for next ten years	$300,000
Residual value	$50,000
Required rate of return	12%

Calculate the payback period for the investment.

Select one:

3.83 years

2.83 year

3.0 years

3.5 years

2 years

2.33 years

47-

The income statement for Eagle Inc. is divided by its two product linesblankets and pillowsis as follows:

	Blankets	Pillows	Total
Sales revenue	$700,000	$500,000	$1,200,000
Variable expenses	450,000	430,000	880,000
Contribution margin	250,000	70,000	320,000
Fixed expenses	85,000	85,000	170,000
Operating income (loss)	$165,000	$(15,000)	$150,000

How Operating income will be affected Assuming total fixed costs will not change if Eagle Inc. drops the Pillows line.

Select one:

operating income will fall by $70,000.

operating income will not be affected.

operating income will increase by $53,000.

operating income will increase by $70,000.

operating income will fall by $53,000.