Shine Bright Company has three product lines-D, E, and F. The following information is available:
$$\begin{array} { | l | r | r | r | }
\hline & \text { D } & \text { E } &{ \text { F } } \
\hline \text { Sales } & \$ 60,000 & \$ 38,000 & \$ 26,000 \
\hline \text { Variable costs } & 36,000 & 18,000 & 12,000 \
\hline \text { Contribution margin } & 24,000 & 20,000 & 14,000 \
\hline \text { Fixed Experses } & 12,000 & 15,000 & 16,000 \
\hline \text { Operating income (loss) } & \$ 12,000 & \$ 5,000 & \$ ( 2,000 ) \
\hline
\end{array}$$
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Shine Bright Company is thinking of dropping product line F because it is reporting an operating loss. Assuming fixed costs are unavoidable, if Shine Bright Company drops product line F and does not replace it, what effect will this have on operating income?

Question

Shine Bright Company has three product lines-D, E, and F. The following information is available:
$$\begin{array} { | l | r | r | r | } 
\hline & \text { D } & \text { E } &{ \text { F } } \
\hline \text { Sales } & \$ 60,000 & \$ 38,000 & \$ 26,000 \
\hline \text { Variable costs } & 36,000 & 18,000 & 12,000 \
\hline \text { Contribution margin } & 24,000 & 20,000 & 14,000 \
\hline \text { Fixed Experses } & 12,000 & 15,000 & 16,000 \
\hline \text { Operating income (loss) } & \$ 12,000 & \$ 5,000 & \$ ( 2,000 ) \
\hline
\end{array}$$
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Shine Bright Company is thinking of dropping product line F because it is reporting an operating loss. Assuming fixed costs are unavoidable, if Shine Bright Company drops product line F and does not replace it, what effect will this have on operating income?

Quizplus · Accepted Answer

If product line F is dropped, the company will lose its contribution margin of $14,000, which will decrease the overall operating income by $14,000, assuming fixed costs are unavoidable and remain unchanged.

Shine Bright Company Has Three Product Lines-D, E, and F