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 Sporty line is used to increase the production of Luxury watches by 250%, 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 Sporty line is used to increase the production of Luxury watches by 250%, how will operating income be affected?

Quizplus · Accepted Answer

The increase in production of Luxury watches by 250% will lead to an increase in revenue and contribution margin, while fixed costs remain unchanged. The net effect is an increase in operating income by $177,500.

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