Boots Plus has two product lines: Hiking boots and Fashion boots.Income statement data for the most recent year follow:

Assuming the Fashion line is discontinued,total fixed costs remain unchanged,and the space formerly used to produce the Fashion line is used to increase the production of Hiking boots by 250%,how will operating income be affected?

Question

Boots Plus has two product lines: Hiking boots and Fashion boots.Income statement data for the most recent year follow:

Assuming the Fashion line is discontinued,total fixed costs remain unchanged,and the space formerly used to produce the Fashion line is used to increase the production of Hiking boots by 250%,how will operating income be affected?

Quizplus · Accepted Answer

A)
Add'l Hiking Revenue$340,000 × 2.5 = $850,000
Less Hiking Variable Expenses $235,000 × 2.5 = (587,500)
Contribution Margin 262,500
Less: Fixed Expense (76,000)
Operating Income 186,500
Less old OI 49,000
Difference $137,500

Boots Plus Has Two Product Lines: Hiking Boots and Fashion