Michael's 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 $900,000 $500,000 $400,000
Variable costs (480,000 ) (200,000 ) (280,000 )
Contribution margin $420,000 $300,000 $120,000
Fixed costs (230,000 ) (80,000 ) (150,000 )
Operating income (loss) $190,000 $220,000 $(30,000 )
If $90,000 of fixed costs will be eliminated by dropping the football helmets line, how will dropping football helmets affect operating income of the company?
A) Operating income will increase by $90,000.
B) Operating income will increase by $120,000.
C) Operating income will decrease by $150,000.
D) Operating income will decrease by $30,000.
D .D)
Expected decrease in revenue $(400,000 )
Expected decrease in total variable costs $280,000
Expected decrease in fixed costs 90,000
Expected decrease in total costs 370,000
Expected decrease in operating income $(30,000 )
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