Leonora Industries manufactures light fixtures for home,retail,and industrial customers.The retail line has been showing losses for several years,and management is considering dropping the line.Recent income statements have been very similar to the following information which was prepared for the most recent year:
Of the fixed costs,$315,000 is common costs that have been allocated equally to each product line.What will total operating income be if Leonora drops the retail line?
A) $101,900
B) $3,100
C) $77,400
D) $26,900

Question

Leonora Industries manufactures light fixtures for home,retail,and industrial customers.The retail line has been showing losses for several years,and management is considering dropping the line.Recent income statements have been very similar to the following information which was prepared for the most recent year:
  Of the fixed costs,$315,000 is common costs that have been allocated equally to each product line.What will total operating income be if Leonora drops the retail line? 
A) $101,900 
B) $3,100 
C) $77,400 
D) $26,900

Quizplus · Accepted Answer

$315,000 ÷ 3 = $105,000 to be absorbed by remaining product lines 
$67,500 + $34,400 Op. Inc. – $105,000 = -$3,100 operating loss

Leonora Industries Manufactures Light Fixtures for Home,retail,and Industrial Customers