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The Income Statement for Champion Parts Is Divided by Its

Question 110

Multiple Choice

The income statement for Champion Parts is divided by its two product lines,Part L2 and Part C6,as follows:
 Part L2  Part C6  Total  Sales revenue $680,000$275,000$955,000 Variable expenses $450,000$210,000$660,000 Contribution margin $230,000$65,000$295,000 Fixed expenses $75,000$75,000$150,000 Operating income (loss)  $155,000$(10,000) $145,000\begin{array} { | l | r | r | r | } \hline & { \text { Part L2 } } &{ \text { Part C6 } } & { \text { Total } } \\\hline \text { Sales revenue } & \$ 680,000 & \$ 275,000 & \$ 955,000 \\\hline \text { Variable expenses } & \$ 450,000 & \$ 210,000 & \$ 660,000 \\\hline \text { Contribution margin } & \$ 230,000 & \$ 65,000 & \$ 295,000 \\\hline \text { Fixed expenses } & \$ 75,000 & \$ 75,000 & \$ 150,000 \\\hline \text { Operating income (loss) } & \$ 155,000 & \$ ( 10,000 ) & \$ 145,000 \\\hline\end{array}
- If Champion Parts can eliminate fixed costs of $40,000 by dropping the Part C6 line,then dropping it should result in which of the following?


A) Increase in total operating income of $25,000
B) Increase in total operating income of $65,000
C) Decrease in total operating income of $65,000
D) Decrease in total operating income of $25,000

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