Use the information below to answer the following question(s):
Pottery Unlimited has two product lines: cups and pitchers. Income statement data for the most recent year follow:

-Assuming the Pitcher line at Pottery Unlimited is dropped, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $45,000 per year, how will operating income be affected?

Question

Use the information below to answer the following question(s):
Pottery Unlimited has two product lines: cups and pitchers. Income statement data for the most recent year follow:
 
-Assuming the Pitcher line at Pottery Unlimited is dropped, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $45,000 per year, how will operating income be affected?

Quizplus · Accepted Answer

Renting out the space formerly used for the Pitcher line adds $45,000 in revenue. Since total fixed costs remain unchanged, this additional revenue directly impacts operating income, leading to an increase. However, the specific increase amount isn't provided in the options directly related to the $45,000 rental income, suggesting the need to consider the net effect of dropping the line and adding rental income. The correct answer, therefore, reflects a net increase in operating income, considering both the loss from dropping the line and the gain from renting the space.

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