Alta Loma Industries has three product lines, A, B, and C.The following information is available: $\begin{array}{lrrr}&A&B&C\
\text { Sales } & \$ 100,000 & \$ 90,000 & \$ 36,000 \
\text { Variable costs } & \underline{76,000} & 48,000 & \underline{27,000} \
\text { Contribution margin } & \$ 24,000 & \$ 42,000 & \$ 9,000 \
\text { Fixed costs: } & & &\
\text { Avoidable } & 9,000 & 18,000 & 3,000 \
\text { Unavoidable } & \underline{6,000} & \underline{9,000} & \underline{8,400} \
\text { Operating income } & \underline{\$ 9,000} & \$ 15,000 & \$ 2,400
\end{array}$ Assume that product line C is discontinued and replaced with product line B.This will double the production and sales of product line B without increasing fixed costs.Operating income will increase _____.
A)$15,000
B)$42,000
C)$24,000
D)$36,000

Question

Quizplus · Accepted Answer

Doubling the production and sales of product line B without increasing fixed costs will add another $15,000 (current operating income of B) to the operating income. Discontinuing C removes its operating income of $2,400 but also eliminates its avoidable fixed costs of $3,000, resulting in a net increase of $600. Therefore, the total increase in operating income is $15,600 ($15,000 from doubling B and $600 from discontinuing C), which is not an option. However, the question seems to have a mistake in its formulation or options provided. Based on the given options and the correct calculation method, none of the options accurately reflects the calculated increase. The closest correct approach would suggest an increase by the operating income of B plus adjustments for C, but the provided options and calculations do not align perfectly with standard financial analysis outcomes.

Alta Loma Industries Has Three Product Lines, A, B, and C.The