Macaulay Roller Skates has three product lines-D,E,and F.The following information is available: $\begin{array}{|l|r|r|r|}
\hline&\mathrm{D} & \mathrm{E} & \mathrm{F}\
\hline \text { Sales revenue } & \$ 70,000 & \$ 60,000 & \$ 31,000 \
\hline \text { Variable costs } & (30,000) & (10,000 & \underline{12,000} \
\hline \text { Contribution margin } & \$ 40,000 & \$ 50,000 & \$ 19,000 \
\hline \text { Fixed costs } & (15,000) & \underline{(10,000} & \underline{(24,000)} \
\hline \text { Operating income (loss) } & \$ 25,000 & \$ 40,000 & \$(5,000) \
\hline
\end{array}$
The company is deciding whether to drop product line F because it has an operating loss.Assuming fixed costs are unavoidable,if Macaulay drops product line F and does not replace it,what effect will this have on operating income?

Question

Macaulay Roller Skates has three product lines-D,E,and F.The following information is available: $\begin{array}{|l|r|r|r|}
\hline&\mathrm{D} & \mathrm{E} & \mathrm{F}\
\hline \text { Sales revenue } & \$ 70,000 & \$ 60,000 & \$ 31,000 \
\hline \text { Variable costs } & (30,000) & (10,000 & \underline{12,000} \
\hline \text { Contribution margin } & \$ 40,000 & \$ 50,000 & \$ 19,000 \
\hline \text { Fixed costs } & (15,000) & \underline{(10,000} & \underline{(24,000)} \
\hline \text { Operating income (loss) } & \$ 25,000 & \$ 40,000 & \$(5,000) \
\hline
\end{array}$
 The company is deciding whether to drop product line F because it has an operating loss.Assuming fixed costs are unavoidable,if Macaulay drops product line F and does not replace it,what effect will this have on operating income?

Quizplus · Accepted Answer

If product line F is dropped, the contribution margin of $19,000 will be lost, while the fixed costs of $24,000 will remain, leading to a decrease in operating income by $19,000.

Macaulay Roller Skates Has Three Product Lines-D,E,and F The Company Is Deciding Whether to Drop Product Line F