Armor Sports,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | }
\hline & \text { Total } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 950,000 & \$ 600,000 & \$ 350,000 \\
\hline \text { Variable costs } & \underline { 4990,000 } & \underline { ( 200,000) } & ( \underline { 290,000 } ) \\
\hline \text { Contribution margin } & \$ 460,000 & \$ 400,000 & \$ 60,000 \\
\hline \text { Fixed costs } & \underline { ( 170,000 } & \underline { ( 70,000) } & \underline { ( 100,000 ) } \\
\hline \text { Operating income (loss) } & \underline { \$ 290,000} & \underline { \$ 330,000} & \underline { \$ ( 40,000)} \\
\hline
\end{array}$$ What is the effect of dropping football helmets line on the operating income of the company? (Assume that fixed costs remain unchanged and that there would be no adverse effect on other sales.)

Question

Armor Sports,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | } 
\hline & \text { Total } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 950,000 & \$ 600,000 & \$ 350,000 \\
\hline \text { Variable costs } & \underline { 4990,000 } & \underline { ( 200,000) } & ( \underline { 290,000 } ) \\
\hline \text { Contribution margin } & \$ 460,000 & \$ 400,000 & \$ 60,000 \\
\hline \text { Fixed costs } & \underline { ( 170,000 } & \underline { ( 70,000) } & \underline { ( 100,000 ) } \\
\hline \text { Operating income (loss) } & \underline { \$ 290,000} & \underline { \$ 330,000} & \underline { \$ ( 40,000)} \\
\hline
\end{array}$$ What is the effect of dropping football helmets line on the operating income of the company? (Assume that fixed costs remain unchanged and that there would be no adverse effect on other sales.)

Quizplus · Accepted Answer

The operating income from the football helmets line is $60,000 ($380,000 - $320,000). Dropping this line would result in a decrease in revenue of $320,000, but since there would be no effect on the fixed costs, the operating expenses would remain the same. Therefore, the company's operating income would decrease by $60,000.

Armor Sports,Inc What Is the Effect of Dropping Football Helmets Line on Statement