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 )
You might also like to view...
Income tax effects are associated with all the following except:
a. Annual net benefits (e.g., reduction in operating expenses) associated with a proposed investment. b. Effect of depreciation expense associated with an investment project. c. Sale of an investment asset at the end of the asset's useful life. d. Required increase in net working capital associated with an investment project. e. Disposition (i.e., sale) of an existing asset at an amount different from the asset's net book value (NBV).
Earnings per share
What will be an ideal response?