The income statement for Lovely Locks is divided by its two product lines, Curling Irons and Straighteners, as follows: If Lovely Locks can eliminate fixed costs of $32,000 and increase the sale of Curling Irons by 6,000 units at a selling price of $30 per unit and a contribution margin of $8 per unit, then discontinuing the Straighteners should result in which of the following?

Question

The income statement for Lovely Locks is divided by its two product lines, Curling Irons and Straighteners, as follows:  If Lovely Locks can eliminate fixed costs of $32,000 and increase the sale of Curling Irons by 6,000 units at a selling price of $30 per unit and a contribution margin of $8 per unit, then discontinuing the Straighteners should result in which of the following?

Quizplus · Accepted Answer

By discontinuing Straighteners, Lovely Locks would save fixed costs of $32,000. The increase in sale of Curling Irons by 6,000 units would generate an additional contribution margin of $8 per unit, which results in an increase of operating income by $48,000 ($8 x 6,000 units). Therefore, the total increase in operating income would be $48,000 - $32,000 = $16,000. Thus, the correct answer is C.

The Income Statement for Lovely Locks Is Divided by Its