Sports Hats, Etc. has two product lines: baseball helmets and football helmets. Income statement data for the most recent year follow:

- Assuming the Football Helmets line is dropped, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $45,000 per year, how will operating income be affected?

Question

Sports Hats, Etc. has two product lines: baseball helmets and football helmets. Income statement data for the most recent year follow:

- Assuming the Football Helmets line is dropped, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $45,000 per year, how will operating income be affected?

Quizplus · Accepted Answer

The increase in operating income is the rental income of $45,000 minus the lost contribution margin of $30,000 from dropping the Football Helmets line, resulting in a net increase of $15,000.