Ulmer Company has three product lines, X, Y, and Z. The following information is available:

-Ulmer Company is thinking of dropping product line Z since it is losing money. Assuming Ulmer drops line Z and does NOT replace it, the operating income will
A) increase by $ 800.
B) increase by $1,000.
C) decrease by $1,000.
D) decrease by $1,800.

Question

Ulmer Company has three product lines, X, Y, and Z. The following information is available:
  
-Ulmer Company is thinking of dropping product line Z since it is losing money. Assuming Ulmer drops line Z and does NOT replace it, the operating income will
A) increase by $ 800. 
B) increase by $1,000. 
C) decrease by $1,000. 
D) decrease by $1,800.

Quizplus · Accepted Answer

To find out the impact of dropping product line Z, we need to compute the operating income for all three product lines with and without Z.

With Z:
Operating Income = (300*10) + (500*8) - (400*12)
Operating Income = $1,600

Without Z:
Operating Income = (300*10) + (500*8)
Operating Income = $1,800

Therefore, dropping product line Z will result in a decrease in operating income by $1,000 (from $1,800 to $800). Hence, the correct answer is C.

Ulmer Company Has Three Product Lines, X, Y, and Z