Dynamic Designs has three product lines in its retail stores: self-sticking wallpaper, faux wood panels, and wall decor. Results of the past month are presented below: The allocated fixed costs are unavoidable. Demand of individual products are not affected by changes in other product lines.
a. What will happen to total operating income if Dynamic Designs discontinues the wallpaper product line?
b. Should the wallpaper product line be dropped?
c. If all fixed costs were direct fixed costs instead of allocated fixed costs, what would be the effect of dropping the wallpaper product line on the company operation income?
d. Given the assumption in (c), should the wallpaper product line be discontinued?

Question

Dynamic Designs has three product lines in its retail stores: self-sticking wallpaper, faux wood panels, and wall decor. Results of the past month are presented below:  The allocated fixed costs are unavoidable. Demand of individual products are not affected by changes in other product lines. 
a. What will happen to total operating income if Dynamic Designs discontinues the wallpaper product line?
b. Should the wallpaper product line be dropped?
c. If all fixed costs were direct fixed costs instead of allocated fixed costs, what would be the effect of dropping the wallpaper product line on the company operation income?
d. Given the assumption in (c), should the wallpaper product line be discontinued?

Quizplus · Accepted Answer

The Answer of Dynamic Designs has three product lines in its retail stores: self-sticking wallpaper, faux wood panels, and wall decor. Results of the past month are presented below:  The allocated fixed costs are unavoidable. Demand of individual products are not affected by changes in other product lines. 
a. What will happen to total operating income if Dynamic Designs discontinues the wallpaper product line?
b. Should the wallpaper product line be dropped?
c. If all fixed costs were direct fixed costs instead of allocated fixed costs, what would be the effect of dropping the wallpaper product line on the company operation income?
d. Given the assumption in (c), should the wallpaper product line be discontinued?

Dynamic Designs Has Three Product Lines in Its Retail Stores