Use the information below to answer the following question(s):
Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow:

-Assuming the Fashion line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $30,000 per year, how will operating income be affected?

Question

Use the information below to answer the following question(s):
Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow:
 
-Assuming the Fashion line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $30,000 per year, how will operating income be affected?

Quizplus · Accepted Answer

If the Fashion line is discontinued, the company will save $260,000 in variable costs. Since total fixed costs remain the same, the contribution margin will increase by $260,000. The company will also receive $30,000 in rent from the space formerly used to produce the Fashion line. Thus, the operating income will increase by $290,000.
 
So, option C is correct as it is the only option that shows an increase in operating income, and it is the closest option to what we calculated.

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