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 costs are unavoidable. Assume Jim Bean Company is able to increase the sale price of product F to $32,000 with no change in volume of units sold and no change in variable costs or fixed costs. What affect will this have on operating income?

Question

Quizplus · Accepted Answer

If the sale price of product F is increased by $12,000, the contribution margin will increase by $12,000 (since there is no change in variable costs). This will result in an increase in operating income for product F by $12,000, making it profitable. Therefore, the overall effect on operating income would be an increase of $12,000.

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