The income statement for Eideldown,Inc.is divided by its two product lines,blankets and pillows,as follows:

If total fixed costs remain unchanged and Eideldown,Inc.drops the pillows line,operating income will decrease by $370,000.

Question

The income statement for Eideldown,Inc.is divided by its two product lines,blankets and pillows,as follows:
  
If total fixed costs remain unchanged and Eideldown,Inc.drops the pillows line,operating income will decrease by $370,000.

Quizplus · Accepted Answer

Since dropping the pillows line will decrease the total revenue by $750,000 and the total contribution margin by $380,000, the decrease in operating income would be the difference between the $380,000 decrease in contribution margin and the $10,000 decrease in fixed costs, which is $370,000. Therefore, the statement is true.

The Income Statement for Eideldown,Inc