Central Industries has three product lines: A,B and C.The following information is available:
$\begin{array}{llll}&\text { Product A }&\text { Product B }&\text { Product C }\
\text { Sales } & \$ 100,000 & \$ 90,000 & \$ 44,000 \
\text { Variable costs } & 76,000 & 48,000 & 35,000 \
\text { Contribution margin } & 24,000 & 42,000 & 9,000 \
\text { Avoidable fixed costs } & 9,000 & 18,000 & 3,000 \
\text { Unavoidable fixed costs } & \underline{6,000} & \underline{9,000} & \underline{7,700}\
\text { Operating income(loss) }&\$9,000&\$15,000&\$(1,700)
\end{array}$
Central Industries is thinking about dropping Product C because it is reporting a loss.Assume Central Industries drops Product C and does not replace it.What will happen to operating income?
A) increase by $600
B) increase by $2,400
C) decrease by $6,000
D) decrease by $9,000

Question

Quizplus · Accepted Answer

Dropping Product C will eliminate its $1,700 loss and its $3,000 of avoidable fixed costs, resulting in a $4,700 increase in operating income. However, the company will also lose the $9,000 of unavoidable fixed costs associated with Product C, resulting in a net decrease in operating income of $6,000.

Central Industries Has Three Product Lines: A,B and C Central Industries Is Thinking About Dropping Product C Because It