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

Business

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