A manager at the Marina Concepts Store sells three levels of boat heaters,low,medium,and high,to house their winter boats.The managerial accountant reported the following information:

The high-level heater is operating at a loss.If the manager discontinued the high-level heater,what is the increase or decrease in operating income? What is the increase or decrease in operating income if the manager discontinued the heater and rented out the space used to store the heater for $11,000 per year?
A)$800 increase;$8,500 increase
B)$900 decrease;$9,200 decrease
C)$1,000 increase;$9,300 increase
D)$3,400 decrease;$7,600 increase
E)$1,600 increase;$9,600 increase

Question

A manager at the Marina Concepts Store sells three levels of boat heaters,low,medium,and high,to house their winter boats.The managerial accountant reported the following information:

The high-level heater is operating at a loss.If the manager discontinued the high-level heater,what is the increase or decrease in operating income? What is the increase or decrease in operating income if the manager discontinued the heater and rented out the space used to store the heater for $11,000 per year?
A)$800 increase;$8,500 increase 
B)$900 decrease;$9,200 decrease 
C)$1,000 increase;$9,300 increase 
D)$3,400 decrease;$7,600 increase 
E)$1,600 increase;$9,600 increase

Quizplus · Accepted Answer

D)If the manager drops the high-level heater,the company will lose $7,800 in contribution margin and will only save $4,400 in fixed costs,a decrease in operating income of $3,400.Without the high-level heater,operating income is $1,500 less than currently reported.
Operating income impact on space rented: [($11,000 - $3,400)] = $7,600 increase

A Manager at the Marina Concepts Store Sells Three Levels