Lehigh Roller Skates has three product lines-D,E,and F.The following information is available: $\begin{array}{|l|c|c|c|}
\hline&\mathrm{D} & \mathrm{E} & \mathrm{F}\
\hline \text { Sales revenue } & \$ 70,000 & \$ 50,000 & \$ 30,000 \
\hline \text { Variable costs } & (20,000) & (10,000) & (12,000) \
\hline \text { Contribution margin } & \$ 50,000 & \$ 40,000 & \$ 18,000 \
\hline \text { xed costs } & (10,000) & (5,000) & (23,000) \
\hline \text { erating in } & \$ 40,000 & \$ 35,000 & \$(5,000) \
\hline
\end{array}$ The company is deciding whether to drop product line F because it has an operating loss.Assume that $15,000 of total fixed costs could be eliminated by dropping F.What effect would this decision have on operating income?

Question

Quizplus · Accepted Answer

Dropping product line F would eliminate its contribution margin of $18,000, but also remove $15,000 of its fixed costs, resulting in a net decrease in operating income of $3,000.

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