Momentum Rollerblades has three product lines-D,E,and F.The following information is available: $\begin{array}{|l|l|l|l|}
\hline& \text { D } & \text { E } & \text { F } \
\hline \text { Sales revenue } & \$ 80,000 & \$ 60,000 & \$ 31,000 \
\hline \text { Variable costs } & (30,000 )& (15,000 )& (12,000) \
\hline \text { Contribution margin } & \$ 50,000 & \$ 45,000 & \$ 19,000 \
\hline \text { Fixed costs } & (10,000) & (5000) & (23,000) \
\hline \text { Operating income (loss) } & \$ 40,000 & \$ 40,000 & \$(4000) \
\hline
\end{array}$
The company is deciding whether to drop product line F because it has an operating loss.Assume that $22,000 of total fixed costs could be eliminated by dropping F.What effect would this decision have on operating income?

Question

Momentum Rollerblades has three product lines-D,E,and F.The following information is available: $\begin{array}{|l|l|l|l|} 
\hline& \text { D } & \text { E } & \text { F } \
\hline \text { Sales revenue } & \$ 80,000 & \$ 60,000 & \$ 31,000 \
\hline \text { Variable costs } & (30,000 )& (15,000 )& (12,000) \
\hline \text { Contribution margin } & \$ 50,000 & \$ 45,000 & \$ 19,000 \
\hline \text { Fixed costs } & (10,000) & (5000) & (23,000) \
\hline \text { Operating income (loss) } & \$ 40,000 & \$ 40,000 & \$(4000) \
\hline
\end{array}$
 The company is deciding whether to drop product line F because it has an operating loss.Assume that $22,000 of total fixed costs could be eliminated by dropping F.What effect would this decision have on operating income?

Quizplus · Accepted Answer

Dropping product line F would eliminate its operating loss of $4000 and save $22,000 in fixed costs, resulting in a net increase in operating income of $3000.

Momentum Rollerblades Has Three Product Lines-D,E,and F The Company Is Deciding Whether to Drop Product Line F