Momentum Rollerblades has three product lines-D,E,and F.The following information is available: $\begin{array}{|l|r|r|r|}
\hline& \mathrm{D} & \mathrm{E} & \mathrm{F} \
\hline \text { Sales revenue } & \$ 80,000 & \$ 60,000 & \$ 31,000 \
\hline \text { Variable costs } & (30,000 & (15,000 & (12,000) \
\hline \text { Contribution margin } & \$ 50,000 & \$ 45,000 & \$ 19,000 \
\hline \text { Fixed costs } & (10,000) & (5000) & (23,000) \
\hline \text { Operating income (loss) } & \$ 40,000 & \$ 40,000 & \$(4000) \
\hline
\end{array}$ The company is deciding whether to drop product line F because it has an operating loss.Assume that $22,000 of total fixed costs could be eliminated by dropping F.What effect would this decision have on operating income?

Question

Momentum Rollerblades has three product lines-D,E,and F.The following information is available: $\begin{array}{|l|r|r|r|} 
\hline& \mathrm{D} & \mathrm{E} & \mathrm{F} \
\hline \text { Sales revenue } & \$ 80,000 & \$ 60,000 & \$ 31,000 \
\hline \text { Variable costs } & (30,000 & (15,000 & (12,000) \
\hline \text { Contribution margin } & \$ 50,000 & \$ 45,000 & \$ 19,000 \
\hline \text { Fixed costs } & (10,000) & (5000) & (23,000) \
\hline \text { Operating income (loss) } & \$ 40,000 & \$ 40,000 & \$(4000) \
\hline
\end{array}$ The company is deciding whether to drop product line F because it has an operating loss.Assume that $22,000 of total fixed costs could be eliminated by dropping F.What effect would this decision have on operating income?

Quizplus · Accepted Answer

Dropping product line F would eliminate its operating loss of $4,000 and save $22,000 in fixed costs, resulting in a net increase in operating income of $3,000 ($22,000 savings - $4,000 loss).

Momentum Rollerblades Has Three Product Lines-D,E,and F The Company Is Deciding Whether to Drop Product Line F