Faros Hats,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | }
\hline & { \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 850,000 & \$ 500,000 & \$ 350,000 \
\hline \text { Variable costs } & ( 440,000 & ( 150,000 ) & ( 290,000 ) \
\hline \text { Contribution margin } & \$ 410,000 & \$ 350,000 & \$ 60,000 \
\hline \text { Fixed costs } & ( 190,000 & \$ 90,000 ) & ( 100,000 ) \
\hline \text { Operating income (loss) } & \$ 220,000 & \$ 260,000 & \$ ( 40,000 ) \
\hline
\end{array}$$ What is 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-batting helmets and football helmets.The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | } 
\hline &  { \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 850,000 & \$ 500,000 & \$ 350,000 \
\hline \text { Variable costs } & ( 440,000 & ( 150,000 ) & ( 290,000 ) \
\hline \text { Contribution margin } & \$ 410,000 & \$ 350,000 & \$ 60,000 \
\hline \text { Fixed costs } & ( 190,000 & \$ 90,000 ) & ( 100,000 ) \
\hline \text { Operating income (loss) } & \$ 220,000 & \$ 260,000 & \$ ( 40,000 ) \
\hline
\end{array}$$ What is 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 a loss of its contribution margin of $60,000, leading to a decrease in the overall operating income by that amount.

Faros Hats,Inc What Is the Effect of Dropping Football Helmets Line on Statement