Eagan Company has three product lines, A, B and C. The following information is available:

-Assuming product line B is discontinued and the space formerly used to produce product B is rented for $5,000 per year, operating income will
A) increase $5,000.
B) increase $7,000.
C) increase $1,000.
D) decrease $1,000.

Question

Eagan Company has three product lines, A, B and C. The following information is available:
  
-Assuming product line B is discontinued and the space formerly used to produce product B is rented for $5,000 per year, operating income will
A) increase $5,000. 
B) increase $7,000. 
C) increase $1,000. 
D) decrease $1,000.

Quizplus · Accepted Answer

The operating income will increase by $1,000 because the rental income of $5,000 will be added, but the loss of contribution margin from discontinuing product B (assumed to be $4,000) will offset part of this gain, resulting in a net increase of $1,000.

Eagan Company Has Three Product Lines, A, B and C