Macaulay Roller Skates has three product lines—D, E, and F
The following information is available:
D E F
Sales revenue $70,000 $60,000 $31,000
Variable costs (30,000 ) (10,000 ) (12,000 )
Contribution margin $40,000 $50,000 $19,000
Fixed costs (15,000 ) (10,000 ) (24,000 )
Operating income (loss) $25,000 $40,000 $(5,000 )
The company is deciding whether to drop product line F because it has an operating loss. Assuming fixed costs are unavoidable, if Macaulay drops product line F and does not replace it, what effect will this have on operating income?
A) Operating income will increase $5,000.
B) Operating income will increase $19,000.
C) Operating income will increase $24,000.
D) Operating income will decrease $19,000.
D .D)
Expected decrease in revenue $(31,000 )
Expected decrease in total variable costs $12,000
Expected decrease in fixed costs 0
Expected decrease in total costs 12,000
Expected decrease in operating income $(19,000 )
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