Protector,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | }
\hline & { \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 840,000 & \$ 500,000 & \$ 340,000 \
\hline \text { Variable costs } & ( 480,000 & \underline { ( 200,000 ) } & ( 280,000 ) \
\hline \text { Contribution margin } & \$ 360,000 & \$ 300,000 & \$ 60,000 \
\hline \text { Fixed costs } & ( 170,000 & ( 80,000 ) & ( 90,000 ) \
\hline \text { Operating income (loss) } & \$ 190,000 & \$ 220,000 & \$ ( 30,000 ) \
\hline
\end{array}$$ Assuming the football helmets line is dropped,total fixed costs remain unchanged,and the space formerly used to produce the line is rented for $100,000 per year,how will operating income be affected?

Question

Protector,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | } 
\hline & { \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \
\hline \text { Sales revenue } & \$ 840,000 & \$ 500,000 & \$ 340,000 \
\hline \text { Variable costs } & ( 480,000 & \underline { ( 200,000 ) } & ( 280,000 ) \
\hline \text { Contribution margin } & \$ 360,000 & \$ 300,000 & \$ 60,000 \
\hline \text { Fixed costs } & ( 170,000 & ( 80,000 ) & ( 90,000 ) \
\hline \text { Operating income (loss) } & \$ 190,000 & \$ 220,000 & \$ ( 30,000 ) \
\hline
\end{array}$$ Assuming the football helmets line is dropped,total fixed costs remain unchanged,and the space formerly used to produce the line is rented for $100,000 per year,how will operating income be affected?

Quizplus · Accepted Answer

Dropping the football helmets line eliminates its $30,000 loss. Renting out the space adds $100,000 in income. The net effect is an increase in operating income of $40,000 ($100,000 - $30,000).

Protector,Inc Assuming the Football Helmets Line Is Dropped,total Fixed Costs Remain