Macaulay Roller Skates Company has three product lines-D,E,and F.The following information is available:
- The company is thinking of dropping product line F because it is reporting an operating loss.Assume that $15,000 of total fixed costs could be eliminated by dropping F.What effect would this decision have on operating income?

Question

Macaulay Roller Skates Company has three product lines-D,E,and F.The following information is available: 
- The company is thinking of dropping product line F because it is reporting an operating loss.Assume that $15,000 of total fixed costs could be eliminated by dropping F.What effect would this decision have on operating income?

Quizplus · Accepted Answer

If product line F is dropped, the company saves $15,000 in fixed costs but loses $20,000 in contribution margin (since operating loss is $5,000). Thus, operating income decreases by $5,000.

Macaulay Roller Skates Company Has Three Product Lines-D,E,and F