Question

Gator Corporation manufactures several types of accessories. For the year, the gloves and mittens line had sales of $480,000, variable expenses of $360,000, and fixed expenses of $140,000. Therefore, the gloves and mittens line had a net loss of $20,000. If Gator eliminates the line, $35,000 of fixed costs will remain. Prepare an analysis showing whether the company should eliminate the gloves and mittens line. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

The company will lose $85,000 if the product line is discontinued

Step-by-step explanation:

Giving the following information:

Sales= 480,000

variable expenses= (360,000)

Contribution margin= 120,000

fixed expenses= (140,000)

Net operating income= (20,000)

If Gator eliminates the line, $35,000 of fixed costs will remain.

We need to determine the effect on income if the product line is discontinued.

Effect on income= fixed costs - net operating income

Effect on income= -105,000 - (-20,000)

Effect on income= -85,000

The company will lose $85,000 if the product line is discontinued