The Print Manufacturing Company manufactures Size 1, Size 2, and Size 3 printer ribbons to support the printers it manufactures. The managerial accountant reported the following information:

The managerial accountant at Print Manufacturing noted that the Size 3 printer ribbon reports a loss and the managerial accountant needs to determine if the company should drop the Size 3 printer ribbon. What is the increase or decrease in operating income if the operations manager drops the Size 3 printer ribbon and does not replace it? If the managerial accountant recommends that the organization drop the Size 3 printer ribbon and rent out the space the company uses to store the product at $11,000 per year, is there an increase or a decrease in operating income?

Discontinuing the product results in a $12,000 loss of the contribution margin and the organization can save only $10,000 in avoidable fixed costs. Without the Size 3 printer ribbon, operating income is $2,000 less; and the operating impact on the space rented is $11,000 - $2,000 = $9,000 increase in operating income to drop the product and rent out the space.