1. Consider the following statements:
A. The segment’s net operating income, after deducting both traceable and allocated fixed costs, is negative.
B. The segment’s avoidable fixed costs exceed its contribution margin.
C. The segment’s allocated fixed costs plus its traceable fixed costs exceed its contribution margin.
Which of the following is/are a valid reason(s) for dropping the segment?
a) B only
b) A and B only
c) A, B, and C
d) A only
e) C only
2. Select all of the following that are the same as a relevant cost:
-unavoidable cost
-avoidable cost
-differential cost
-differential benefit
-important cost
3. Appel Inc. has two product lines: phones and laptops. They are considering dropping the phone segment to improve their net operating income. Data for each per unit is as follows:
| Phones | Laptops | |
| Revenue | $530 | $1099 |
| Variable Costs | $245 | $430 |
| Traceable Fixed Costs | $300 | $209 |
| Allocated Fixed Costs | $110 | $130 |
| Total Per Unit | $(125) | $330 |
Assume no allocated fixed costs are avoidable if the phone segment is dropped, but 100% of traceable fixed costs can be avoided.
If Appel Inc. sells 1,069 units of phones and 522 units of laptops, how much will their net operating income increase/decrease if the phone segment is dropped?
Round your answer to the nearest dollar.
