Riverside Industries has three product lines, A, B, and C. The following information is available: $$\begin{array} { l l l l }
& \underline { \mathrm { A } } & \underline { \mathrm { B } } & \underline { \mathrm { C } } \
\text { Sales } & \$ 100,000 & \$ 90,000 & \$ 44,000 \
\text { Variable costs } & 76,000 & 48,000 & 35,000 \
\text { Contribution } & \$ 24,000 & \$ 42,000 & \$ 9,000 \
\text { margin } & & & \
\text { Fixed costs: } & & & \
\text { Avoidable } & 9,000 & 18,000 & 3,000 \
\text { Unavoidable } & \underline { 6,000 } & \underline { 9,000 } & \underline { 7,700 } \
\text { Op erating inc ome } & \underline { \$ 9,000 } & \$ 15,000 & (\$ 1,700 )
\end{array}$$ Riverside Industries is thinking of dropping product line C because it is reporting a loss. Assuming Riverside drops line C and does not replace it, the operating income will:

Question

Riverside Industries has three product lines, A, B, and C. The following information is available: $$\begin{array} { l l l l } 
& \underline { \mathrm { A } } & \underline { \mathrm { B } } & \underline { \mathrm { C } } \
\text { Sales } & \$ 100,000 & \$ 90,000 & \$ 44,000 \
\text { Variable costs } & 76,000 & 48,000 & 35,000 \
\text { Contribution } & \$ 24,000 & \$ 42,000 & \$ 9,000 \
\text { margin } & & & \
\text { Fixed costs: } & & & \
\text { Avoidable } & 9,000 & 18,000 & 3,000 \
\text { Unavoidable } & \underline { 6,000 } & \underline { 9,000 } & \underline { 7,700 } \
\text { Op erating inc ome } & \underline { \$ 9,000 } & \$ 15,000 & (\$ 1,700 )
\end{array}$$ Riverside Industries is thinking of dropping product line C because it is reporting a loss. Assuming Riverside drops line C and does not replace it, the operating income will:

Quizplus · Accepted Answer

Dropping line C will save $3,000 in avoidable fixed costs but lose $9,000 in contribution margin, resulting in a net decrease of $6,000 in operating income.

Riverside Industries Has Three Product Lines, A, B, and C