Question

Macaulay Roller Skates has three product lines - D, E, and F. The following information is available: D E F Sales revenue $70,000 $50,000 $31,000 Variable costs ($20,000) ($15,000) ($11,000) Contribution margin $50,000 $35,000 $20,000 Fixed costs ($20,000) ($5,000) ($23,000) Operating income (loss) $30,000 $30,000 ($3,000) The company is deciding whether to drop product line F because it has an operating loss. Assuming fixed costs are unavoidable, if Macaulay drops product line F and does not replace it, what effect will this have on operating income?

          Macaulay Roller Skates has three product lines - D, E, and F. The following information is available:

D      E      F
Sales revenue        $70,000     $50,000     $31,000
Variable costs       ($20,000)   ($15,000)   ($11,000)
Contribution margin  $50,000     $35,000     $20,000
Fixed costs          ($20,000)   ($5,000)    ($23,000)
Operating income (loss)  $30,000  $30,000     ($3,000)

The company is deciding whether to drop product line F because it has an operating loss. Assuming fixed costs are unavoidable, if Macaulay drops product line F and does not replace it, what effect will this have on operating income?

Added by Phillip T.

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