The income statement for Bedtime Company is divided by its two product lines, blankets and pillows, as follows
Blankets Pillows Total
Sales revenue $620,000 $300,000 $920,000
Variable costs (445,000 ) (240,000 ) (685,000 )
Contribution margin $175,000 $60,000 $235,000
Fixed costs (75,000 ) (76,000 ) (151,000 )
Operating income (loss) $100,000 $(16,000 ) $84,000
Bedtime is considering eliminating the pillows product line. If this line is eliminated, Bedtime will be able to eliminate $73,000 of total fixed costs. How would this business decision impact operating income?
A) increase of $73,000 in operating income
B) decrease of $60,000 in operating income
C) increase of $136,000 in operating income
D) increase of $13,000 in operating income
D .D)
Avoidable fixed costs $73,000
Contribution margin forgone 60,000
Increase in operating income $13,000
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