Faros Hats,Etc.has two product lines-baseball helmets and football helmets.Income statement data for the most recent year follow:
$$\begin{array} { | l | l | l | l | }
\hline &{ \text { Total } } & { \text { Baseball Helmets } } &{ \text { Football Helmets } } \
\hline \text { Sales revenue } & \$ 950,000 & \$ 600,000 & \$ 350,000 \
\hline \text { Variable expenses } & ( 440,000 ) & ( 150,000 ) & ( \underline { 290,000 ) } \
\hline \text { Contribution margin } & \$ 510,000 & \$ 450,000 & \$ 60,000 \
\hline \text { Fixed expenses } & ( 162,000 ) & ( 70,000 ) & ( 92,000 ) \
\hline \text { Operating profit (loss) } & \$ 348,000 & \$ 380,000 & ( \$ 32,000 ) \
\hline
\end{array}$$
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 profit be affected?

Question

Faros Hats,Etc.has two product lines-baseball helmets and football helmets.Income statement data for the most recent year follow:
$$\begin{array} { | l | l | l | l | } 
\hline &{ \text { Total } } & { \text { Baseball Helmets } } &{ \text { Football Helmets } } \
\hline \text { Sales revenue } & \$ 950,000 & \$ 600,000 & \$ 350,000 \
\hline \text { Variable expenses } & ( 440,000 ) & ( 150,000 ) & ( \underline { 290,000 ) } \
\hline \text { Contribution margin } & \$ 510,000 & \$ 450,000 & \$ 60,000 \
\hline \text { Fixed expenses } & ( 162,000 ) & ( 70,000 ) & ( 92,000 ) \
\hline \text { Operating profit (loss) } & \$ 348,000 & \$ 380,000 & ( \$ 32,000 ) \
\hline
\end{array}$$
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 profit be affected?

Quizplus · Accepted Answer

If the Football Helmets line is dropped, the company will lose the contribution margin of $60,000 but will gain $100,000 from renting the space, resulting in a net increase of $40,000 in operating profit.

Faros Hats,Etc Assuming the Football Helmets Line Is Dropped,total Fixed Costs Remain