Faros Hats Inc.has two product lines-baseball helmets and football helmets.The income statement data for the most recent year is as follows:
-What will be 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

Faros Hats Inc.has two product lines-baseball helmets and football helmets.The income statement data for the most recent year is as follows:  
-What will be 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

Dropping the Football Helmets line will result in the elimination of $200,000 in sales and $130,000 in variable costs. However, the fixed costs of $140,000 will still need to be absorbed, resulting in a decrease in operating income of $70,000.