Question

All About Animals has two product​ lines: Cat food and Dog food. Contribution margin income statement data for the most recent year​ follow: Total Cat Food Dog Food Sales revenue ​$85,000 Variable expenses ​$40,000 Contribution margin ​$45,000 Fixed expenses ​$52,000 Operating income​ (loss) ​$ ​$(7,000) Assuming the Dog food is​ discontinued, total fixed costs remain​ unchanged, and the space formerly used to produce the line is rented for per​ year, how will operating income be​ affected?

Answer 1

Increase in operating income by $12,000

Step-by-step explanation:

The above is an incomplete question because the value for 'space normally used to produce the rented line' is missing. However, I assumed the value is $26,000 per year as gotten from the internet -Chegg.

Given the above information, the operating income can be affected as calculated below;

Sales revenue $85,000

Add additional revenue $26,000

Total revenue $11,1000

Less: variable expenses ($40,000)

Contribution margin $71,000

Less: fixed expense ($52,000)

New net operating income

$19,000

Less: Original operating income

($7,000)

Increase in operating income

$12,000