Tyler Corporation has provided you with the following budgeted income statement for one of its products:
$$\begin{array} { | l | r | }
\hline \text { Vales revenue } & \$ 750,000 \
\hline \text { Variable costs } & \underline { 500,000 } \
\hline \text { Fontribution margin } & \$ 250,000 \
\hline \text { Fixed costs } & \underline { 280,000 } \
\hline \text { Operating income } & \
\text { loss } ) &( 30,000 ) \
\hline
\end{array}$$
Tyler Corporation believes that 75% of the fixed costs would be avoidable if the product line was dropped.Based on the impact on the company's operating income or loss,Tyler should keep the product line.

Question

Tyler Corporation has provided you with the following budgeted income statement for one of its products:
 $$\begin{array} { | l | r | } 
\hline \text { Vales revenue } & \$ 750,000 \
\hline \text { Variable costs } & \underline { 500,000 } \
\hline \text { Fontribution margin } & \$ 250,000 \
\hline \text { Fixed costs } & \underline { 280,000 } \
\hline \text { Operating income } & \
\text { loss } ) &( 30,000 ) \
\hline 
\end{array}$$
 Tyler Corporation believes that 75% of the fixed costs would be avoidable if the product line was dropped.Based on the impact on the company's operating income or loss,Tyler should keep the product line.

Quizplus · Accepted Answer

If the product line is dropped, 75% of the fixed costs ($280,000 * 0.75 = $210,000) would be avoided, leaving $70,000 in unavoidable fixed costs. Dropping the product would result in a $70,000 loss, which is worse than the current $30,000 loss, so the product line should be kept.

Tyler Corporation Has Provided You with the Following Budgeted Income