Crash Sports, Inc. has two product lines-batting helmets and football helmets. The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | }
\hline & { \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 1,050,000 & \$ 700,000 & \$ 350,000 \
\hline \text { Variable costs } & ( 430,000 & ( 150,000 & ( 280,000 ) \
\hline \text { Contribution margin } & \$ 620,000 & \$ 550,000 & \$ 70,000 \
\hline \text { Fixed costs } & ( 180,000 & \$ 90,000 & \$ 90,000 ) \
\hline \text { Operating income (loss) } & \$ 440,000 & \$ 460,000 & \$ ( 20,000 ) \
\hline
\end{array}$$ If $50,000 of fixed costs will be eliminated by dropping the football helmets line, how will dropping football helmets affect operating income of the company?

Question

Crash Sports, Inc. has two product lines-batting helmets and football helmets. The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | } 
\hline &  { \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 1,050,000 & \$ 700,000 & \$ 350,000 \
\hline \text { Variable costs } & ( 430,000 & ( 150,000 & ( 280,000 ) \
\hline \text { Contribution margin } & \$ 620,000 & \$ 550,000 & \$ 70,000 \
\hline \text { Fixed costs } & ( 180,000 & \$ 90,000 & \$ 90,000 ) \
\hline \text { Operating income (loss) } & \$ 440,000 & \$ 460,000 & \$ ( 20,000 ) \
\hline
\end{array}$$ If $50,000 of fixed costs will be eliminated by dropping the football helmets line, how will dropping football helmets affect operating income of the company?

Quizplus · Accepted Answer

Dropping the football helmets will eliminate its contribution margin of $70,000 but save $50,000 in fixed costs, resulting in a net decrease of $20,000 in operating income.

Crash Sports, Inc If $50,000 of Fixed Costs Will Be Eliminated by Dropping