Sports Hats, Etc. has two product lines: baseball helmets and football helmets. Income statement data for the most recent year follow:
$$\begin{array} { | l | r | r | r | }
\hline & \text { Total } & \begin{array} { r }
\text { Baseball } \
\text { Helmets }
\end{array} & \begin{array} { r }
\text { Football } \
\text { Helmets }
\end{array} \
\hline \text { Sales revenue } & \$ 460,000 & \$ 310,000 & \$ 150,000 \
\hline \text { Variable expenses } & 355,000 & 235,000 & 120,000 \
\hline \text { Contribution margin } & 105,000 & 75,000 & 30,000 \
\hline \text { Fixed expenses } & 76,000 & { 38,000 } & { 38,000 } \
\hline \text { Operating income (loss) } & \$ 29,000 & \$ 37,000 & \$ ( 8,000 ) \
\hline
\end{array}$$ Assuming fixed costs remain unchanged how would dropping the Football Helmets line affect operating income?

Question

Sports Hats, Etc. has two product lines: baseball helmets and football helmets. Income statement data for the most recent year follow:
$$\begin{array} { | l | r | r | r | } 
\hline & \text { Total } & \begin{array} { r } 
\text { Baseball } \
\text { Helmets }
\end{array} & \begin{array} { r } 
\text { Football } \
\text { Helmets }
\end{array} \
\hline \text { Sales revenue } & \$ 460,000 & \$ 310,000 & \$ 150,000 \
\hline \text { Variable expenses } & 355,000 & 235,000 & 120,000 \
\hline \text { Contribution margin } & 105,000 & 75,000 & 30,000 \
\hline \text { Fixed expenses } & 76,000 & { 38,000 } & { 38,000 } \
\hline \text { Operating income (loss) } & \$ 29,000 & \$ 37,000 & \$ ( 8,000 ) \
\hline
\end{array}$$ Assuming fixed costs remain unchanged how would dropping the Football Helmets line affect operating income?

Quizplus · Accepted Answer

Dropping the Football Helmets line would eliminate its contribution margin of $30,000, which currently helps cover fixed expenses. Without the $30,000 contribution from Football Helmets, the operating income would decrease by $30,000.

Sports Hats, Etc Assuming Fixed Costs Remain Unchanged How Would Dropping the Football