Crash Sports,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $\begin{array}{|l|r|r|r|}
\hline& \text { Total } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 1,050,000 & \$ 700,000 & \$ 350,000 \\hline \text { Variable costs } & (530,000 & (250,000 & (280,000 \
\hline \text { Contribution margin } & \$ 520,000 & \$ 450,000 & \$ 70,000 \
\hline \text { Fixed costs } & (170,000 & \$(80,000 & (90,000 \
\hline \text { Operating income (loss) } & \$ 350,000 & \$ 370,000 & \$(20,000) \
\hline
\end{array}$ If $50,000 of fixed costs will be eliminated by dropping the football helmets line,how will dropping football helmets affect operating income of the company?

Question

Crash Sports,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $\begin{array}{|l|r|r|r|} 
\hline& \text { Total } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 1,050,000 & \$ 700,000 & \$ 350,000 \\hline \text { Variable costs } & (530,000 & (250,000 & (280,000 \
\hline \text { Contribution margin } & \$ 520,000 & \$ 450,000 & \$ 70,000 \
\hline \text { Fixed costs } & (170,000 & \$(80,000 & (90,000 \
\hline \text { Operating income (loss) } & \$ 350,000 & \$ 370,000 & \$(20,000) \
\hline
\end{array}$ If $50,000 of fixed costs will be eliminated by dropping the football helmets line,how will dropping football helmets affect operating income of the company?

Quizplus · Accepted Answer

Dropping the football helmets line will eliminate its contribution margin of $70,000 but also save $50,000 in fixed costs, resulting in a net decrease of $20,000 in operating income.

Crash Sports,Inc If $50,000 of Fixed Costs Will Be Eliminated by Dropping