Armor Sports,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | }
\hline &{ \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 1,040,000 & \$ 700,000 & \$ 340,000 \
\hline \text { Variable costs } & ( 430,000 & ( 150,000 ) & ( 280,000 ) \
\hline \text { Contribution margin } & \$ 610,000 & \$ 550,000 & \$ 60,000 \
\hline \text { Fixed costs } & ( 180,000 & \$ 90,000 ) & ( 90,000 ) \
\hline \text { Operating income (loss) } & \$ 430,000 & \$ 460,000 & \$ ( 30,000 ) \
\hline
\end{array}$$ What is the effect of dropping football helmets line on the operating income of the company? (Assume that fixed costs remain unchanged and that there would be no adverse effect on other sales.)

Question

Armor Sports,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | } 
\hline &{ \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 1,040,000 & \$ 700,000 & \$ 340,000 \
\hline \text { Variable costs } & ( 430,000 & ( 150,000 ) & ( 280,000 ) \
\hline \text { Contribution margin } & \$ 610,000 & \$ 550,000 & \$ 60,000 \
\hline \text { Fixed costs } & ( 180,000 & \$ 90,000 ) & ( 90,000 ) \
\hline \text { Operating income (loss) } & \$ 430,000 & \$ 460,000 & \$ ( 30,000 ) \
\hline
\end{array}$$ What is the effect of dropping football helmets line on the operating income of the company? (Assume that fixed costs remain unchanged and that there would be no adverse effect on other sales.)

Quizplus · Accepted Answer

From the income statement data, we can see that the football helmets line generated a negative operating income of $60,000. This means that dropping the football helmets line would result in a decrease in operating expenses by $60,000, which would result in a decrease in operating income by the same amount. Therefore, the correct answer is C.

Armor Sports,Inc What Is the Effect of Dropping Football Helmets Line on Statement