The income statement for Eagle Inc.is divided by its two product lines,blankets and pillows,as follows:
If total fixed costs remain unchanged and Eagle Inc.drops the pillows line,operating income will fall by $70,000.

Question

The income statement for Eagle Inc.is divided by its two product lines,blankets and pillows,as follows:
  If total fixed costs remain unchanged and Eagle Inc.drops the pillows line,operating income will fall by $70,000.

Quizplus · Accepted Answer

The income statement shows that the contribution margin for the pillows line is $70,000. If the pillows line is dropped, this contribution margin will be lost and therefore operating income will fall by the same amount, as fixed costs remain unchanged.

The Income Statement for Eagle Inc