Westfall Watches has two product lines: Luxury watches and Sporty watches.Income statement data for the most recent year follow:

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

Question

Westfall Watches has two product lines: Luxury watches and Sporty watches.Income statement data for the most recent year follow:

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

Quizplus · Accepted Answer

B)
Add'l Hiking Revenue $360,000 × 2.5 = $900,000
Less Hiking Variable Expenses $235,000 × 2.5 = (587,500)
Contribution Margin 312,500
Less: Fixed Expense (76,000)
Operating Income 236,500
Less old OI 59,000
Difference $177,500

Westfall Watches Has Two Product Lines: Luxury Watches and Sporty