Faros Hats,Etc.has two product lines-baseball helmets and football helmets.Income statement data for the most recent year follow:
$$\begin{array} { | l | l | l | l | }
\hline & { \text { Total } } & { \text { Baseball Helmets } } &{ \text { Football Helmets } } \
\hline \text { Sales revenue } & \$ 860,000 & \$ 500,000 & \$ 360,000 \
\hline \text { Variable expenses } & ( 440,000 ) & ( 150,000 ) & ( \underline { 290,000 ) } \
\hline \text { Contribution margin } & \$ 420,000 & \$ 350,000 & \$ 70,000 \
\hline \text { Fixed expenses } & ( 180,000 ) & ( 80,000 ) & ( 100,000 ) \
\hline \text { Operating profit (loss) } & \$ 240,000 & \$ 270,000 & ( \$ 30,000 ) \
\hline
\end{array}$$
If $10,000 of fixed costs will be eliminated by dropping the Football Helmets line,how will dropping Football Helmets affect the operating profit of the company?

Question

Faros Hats,Etc.has two product lines-baseball helmets and football helmets.Income statement data for the most recent year follow:
$$\begin{array} { | l | l | l | l | } 
\hline & { \text { Total } } & { \text { Baseball Helmets } } &{ \text { Football Helmets } } \
\hline \text { Sales revenue } & \$ 860,000 & \$ 500,000 & \$ 360,000 \
\hline \text { Variable expenses } & ( 440,000 ) & ( 150,000 ) & ( \underline { 290,000 ) } \
\hline \text { Contribution margin } & \$ 420,000 & \$ 350,000 & \$ 70,000 \
\hline \text { Fixed expenses } & ( 180,000 ) & ( 80,000 ) & ( 100,000 ) \
\hline \text { Operating profit (loss) } & \$ 240,000 & \$ 270,000 & ( \$ 30,000 ) \
\hline
\end{array}$$
If $10,000 of fixed costs will be eliminated by dropping the Football Helmets line,how will dropping Football Helmets affect the operating profit of the company?

Quizplus · Accepted Answer

Dropping the Football Helmets line will eliminate its contribution margin of $70,000 but also save $10,000 in fixed costs, resulting in a net decrease of $60,000 in operating profit.

Faros Hats,Etc If $10,000 of Fixed Costs Will Be Eliminated by Dropping