Use the information below to answer the following question(s):
Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow:

-Assuming the Sporty line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $32,000 per year, how will operating income be affected?

Question

Use the information below to answer the following question(s):
Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow:
 
-Assuming the Sporty line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $32,000 per year, how will operating income be affected?

Quizplus · Accepted Answer

The operating income will increase by $22,000 because the rental income of $32,000 will be added, and the loss from discontinuing the Sporty line is $10,000, resulting in a net increase of $22,000.

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