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 Fashion line is used to increase the production of Hiking boots by 250%, 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 Fashion line is used to increase the production of Hiking boots by 250%, how will operating income be affected?

Quizplus · Accepted Answer

The space formerly used to produce the Fashion line is used to increase the production of Hiking boots by 250%. This means that the production of Hiking boots will increase by 250%, and the total fixed costs will remain unchanged. Therefore, the operating income will increase by 250% of the contribution margin for Hiking boots. The contribution margin for Hiking boots is $55,000, so the operating income will increase by $55,000 * 250% = $137,500.

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