Jim Bean Company has three product lines: D, E, and F. The following information is available: D E F
Sales revenue $ 80,000 $42,000 $20,000
Variable expenses $ 40,000 $21,000 $12,000
Contribution margin $ 40,000 $21,000 $ 8,000
Fixed expenses $ 12,000 $15,000 $17,000
Operating income (loss)$ 28,000 $46,000 $(9,000)
Jim Bean Company is thinking of discontinuing product line F because it is reporting an operating loss. All fixed expenses are unavoidable. Assuming Jim Bean Company discontinues product line F and does not replace it, what affect will this have on operating income?

Question

Quizplus · Accepted Answer

Discontinuing product line F will result in a decrease in operating income by $8,000, as the contribution margin of $8,000 from product line F will be lost, while the fixed expenses of $17,000 will remain.

Jim Bean Company Has Three Product Lines: D, E, and F