Rocca Hats,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | }
\hline & { \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 940,000 & \$ 600,000 & \$ 340,000 \
\hline \text { Variable costs } & ( 430,000 & ( 150,000 ) & ( 280,000 ) \
\hline \text { Contribution margin } & \$ 510,000 & \$ 450,000 & \$ 60,000 \
\hline \text { Fixed costs } & ( 180,000 & \$ 90,000 ) & ( 90,000 ) \
\hline \text { Operating income (loss) } & \$ 330,000 & \$ 360,000 & \$ ( 30,000 ) \
\hline
\end{array}$$ Assuming the football helmet line is dropped,total fixed costs remain unchanged,and the space formerly used to produce the football helmet line is used to double the production of batting helmets,operating income will be ________.

Question

Rocca Hats,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | } 
\hline & { \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 940,000 & \$ 600,000 & \$ 340,000 \
\hline \text { Variable costs } & ( 430,000 & ( 150,000 ) & ( 280,000 ) \
\hline \text { Contribution margin } & \$ 510,000 & \$ 450,000 & \$ 60,000 \
\hline \text { Fixed costs } & ( 180,000 & \$ 90,000 ) & ( 90,000 ) \
\hline \text { Operating income (loss) } & \$ 330,000 & \$ 360,000 & \$ ( 30,000 ) \
\hline
\end{array}$$ Assuming the football helmet line is dropped,total fixed costs remain unchanged,and the space formerly used to produce the football helmet line is used to double the production of batting helmets,operating income will be ________.

Quizplus · Accepted Answer

If the football helmet line is dropped, the fixed costs will remain unchanged at $180,000. The space formerly used to produce the football helmet line will be used to double the production of batting helmets. This means that the sales revenue from batting helmets will increase to $1,200,000 (2 x $600,000). The variable costs for batting helmets will also increase to $300,000 (2 x $150,000). The contribution margin for batting helmets will therefore increase to $900,000 ($1,200,000 - $300,000). The operating income will be $720,000 ($900,000 - $180,000).

Rocca Hats,Inc Assuming the Football Helmet Line Is Dropped,total Fixed Costs Remain