Crash Sports,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | }
\hline & { \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 1,050,000 & \$ 700,000 & \$ 350,000 \
\hline \text { Variable costs } & \underline { ( 530,000 } & \underline { ( 250,000 ) } & ( 280,000 ) \
\hline \text { Contribution margin } & \$ 520,000 & \$ 450,000 & \$ 70,000 \
\hline \text { Fixed costs } & ( 170,000 & ( 80,000 ) & ( 90,000 ) \
\hline \text { Operating income (loss) } & \$ 350,000 & \$ 370,000 & \$ ( 20,000 ) \
\hline
\end{array}$$ If $50,000 of fixed costs will be eliminated by dropping the football helmets line,how will dropping football helmets affect operating income of the company?

Question

Crash Sports,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | } 
\hline &  { \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 1,050,000 & \$ 700,000 & \$ 350,000 \
\hline \text { Variable costs } & \underline { ( 530,000 } & \underline { ( 250,000 ) } & ( 280,000 ) \
\hline \text { Contribution margin } & \$ 520,000 & \$ 450,000 & \$ 70,000 \
\hline \text { Fixed costs } & ( 170,000 & ( 80,000 ) & ( 90,000 ) \
\hline \text { Operating income (loss) } & \$ 350,000 & \$ 370,000 & \$ ( 20,000 ) \
\hline
\end{array}$$ If $50,000 of fixed costs will be eliminated by dropping the football helmets line,how will dropping football helmets affect operating income of the company?

Quizplus · Accepted Answer

Dropping the football helmets will eliminate their $70,000 contribution margin but will also remove $50,000 of fixed costs, resulting in a net decrease in operating income of $20,000.

Crash Sports,Inc If $50,000 of Fixed Costs Will Be Eliminated by Dropping