Question

Boots Plus has two product​ lines: Hiking boots and Fashion boots. Income statement data for the most recent year​ follow: Total Hiking Fashion Sales revenue $ 490 comma 000 $ 350 comma 000 ​$140,000 Variable expenses 385 comma 000 265 comma 000 ​120,000 Contribution margin 105 comma 000 85 comma 000 ​20,000 Fixed expenses 80 comma 000 40 comma 000 40 comma 000 Operating income​ (loss) ​$25 comma 000 $ 45 comma 000 $( 20 comma 000 ) If $ 29 comma 000 of fixed costs will be eliminated by discontinuing the Fashion​ line, how will operating income be​ affected?

Answer 1

Effect on income= $9,000 increase

Step-by-step explanation:

Giving the following information:

Fashion:

Contribution margin= ​20,000

Fixed expenses= 40,000

Operating income​ (loss)= (20,000)

$29,000 of fixed costs will be eliminated by discontinuing the Fashion​ line.

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

Effect on income= avoidable fixed costs + operating income

Effect on income= 29,000 - 20,000= $9,000 increase