Omar Industries manufactures two products: Regular and Super. The results of operations for 20x1 follow. Regular Super TotalUnits 10,000 3,700 13,700 Sales revenue$240,000 $740,000 $980,000 Less: Cost of goods sold 180,000 481,000 661,000 Gross Margin$60,000 $259,000 $319,000 Less: Selling expenses 60,000 134,000 194,000 Operating income (loss)$0 $125,000 $125,000 Fixed manufacturing costs included in cost of goods sold amount to $3 per unit for Regular and $20 per unit for Super. Variable selling expenses are $4 per unit for Regular and $20 per unit for Super; remaining selling amounts are fixed.Omar Industries wants to drop the Regular product line. If the line is dropped, company-wide fixed manufacturing costs would fall by
10% because there is no alternative use of the facilities. What would be the impact on operating income if Regular is discontinued?
A. $10,400 increase.
B. $20,000 increase.
C. $39,600 decrease.
D. $0.
E. None of the answers is correct.
Answer: C
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