Lehigh Roller Skates has three product lines—D, E, and F
The following information is available:
D E F
Sales revenue $80,000 $40,000 $31,000
Variable costs (30,000 ) (10,000 ) (12,000 )
Contribution margin $50,000 $30,000 $19,000
Fixed costs (10,000 ) (5,000 ) (24,000 )
Operating income (loss) $40,000 $25,000 $(5,000 )
The company is deciding whether to drop product line F because it has an operating loss. Assume that $15,000 of total fixed costs could be eliminated by dropping F. What effect would this decision have on operating income?
A) Operating income will increase by $34,000.
B) Operating income will increase by $19,000.
C) Operating income will decrease by $4,000.
D) Operating income will decrease by $15,000.
C .C)
Expected decrease in revenue $(31,000 )
Expected decrease in total variable costs $12,000
Expected decrease in fixed costs 15,000
Expected decrease in total costs 27,000
Expected decrease in operating income $(4,000 )
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