Faros Hats, Inc has two product lines—batting helmets and football helmets
The income statement data for the most recent year is as follows:
Total Batting Helmets Football Helmets
Sales revenue $850,000 $500,000 $350,000
Variable costs (440,000 ) (150,000 ) (290,000 )
Contribution margin $410,000 $350,000 $60,000
Fixed costs (190,000 ) (90,000 ) (100,000 )
Operating income (loss) $220,000 $260,000 $(40,000 )
What is the effect of dropping football helmets line on the operating income of the company? (Assume that fixed costs remain unchanged and that there would be no adverse effect on other sales.)
A) Operating income will increase by $40,000.
B) Operating income will increase by $90,000.
C) Operating income will decrease by $60,000.
D) Operating income will decrease by $350,000.
C .C)
Expected decrease in revenue $(350,000 )
Expected decrease in total variable costs $290,000
Expected decrease in fixed costs 0
Expected decrease in total costs 290,000
Expected decrease in operating income $(60,000 )
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